Update

Reflecting official concern with slowing conditions, the Bank of England and the European Central Bank both cut their base rates today (as expected). The surprise was the magnitude of the BkofEng cut - 1 ½% (150 bp’s) - intended shock treatment for that economy. Immediately after, the gov’t urged lenders to pass on all of the cut to borrowers (mortgages pegged to the base rate) and almost immediately lenders explained why they will have trouble doing so. Only Lloyds pledged to pass on the entire cut at this writing. Nevertheless, the magnitude of the cut, putting the benchmark at the lowest level since 1955, will impact positively. This is a good thing because as we highlighted earlier, UK banks (and those of the EU) have a far scarier exposure to developing credits, ongoing, than we do.

At home, this am we saw so-called Chain Store sales for Oct (representing about 10% of total Retail Sales); they were below expectations for 60% of the stores reporting. This is not really news; much of this weakness is already priced in. Tomorrow’s Oct Payroll report is key. The employment data give the most comprehensive report on how many people are looking for jobs, how many have them, what they're getting paid and how many hours they are working. The number is expected to be lower by 200,000, and unemp higher at 6.3%. This would be the 10th consecutive decline in total employment; we last saw 6.3% in 6/03, then to a cyclical low of 4.4% in 3/07, last 6.1% (Sep). At one time we could generally predict the result of this key release for our clients, vs economists’ expectations; we are a tad rusty at the moment so we’ll have to wait and see.

Violence will continue in the equity mkt - really just a freak show. We have inquiries by those who wonder - is it time to buy? We only try to close the pattern early on general fundamentals. A rule we learned the hard way is this: in the financial mkts one must be right at the right time. One’s view re a stock, or stocks in general, or interest rates, or currency or sovereign credits may be correct and for the correct reasons. Yet if the mkt crowd does not agree they can convert you to crow bait in nothing flat as they rush the other direction, then just when you are getting up, they realize you were right, and flatten you a second time. Or from another prospective - how long can you hold your breath.

Robert Craven