So US markets are about to open, and it’s the one year anniversary of the DJIA’s all-time high — a point since which the benchmark US stock index has fallen just shy of 35 per cent.
Futures are pointing to a rise this morning. Stronger than expected IBM profits and a host of positive indicators from the mining sector are buoying sentiment. Not to mention the welter of US commentators now calling a bottom.
Alas, today is also the day the shorters return to the market. From the SEC:
On Friday, October 3, 2008, the President signed the historic Emergency Economic Stabilization Act of 2008 (H.R. 1424), aimed at stemming the credit crisis. Accordingly, the Commission’s Emergency Order that prohibits persons from selling short the securities of financial institutions will expire at 11:59 p.m. ET on Wednesday, October 8, 2008.
There is still plenty of opportunity for financials to fall. Paulson and the US Treasury are coming under increasing pressure to follow the UK’s lead and recapitalise US banks. Paulson himself has said he thinks more banks will fail.
Credit markets are still showing extreme stress. Commercial paper lending still has not normalised and interbank rates continue to widen. The TED and the Libor-OIS spreads are at all-time highs today.
Both CNBC and Bloomberg TV are saying today is the “inflexion point” for the US market. The reality though, is that that inflexion point might well be tomorrow. Lehman’s CDS auction takes place then. Banks have been building up reserves in anticipation. An orderly settlement process and banks will next week truly be able to breath a sigh of relief: nevermind whar there stock price does today.
