Markets opened lower in the US this morning while the Japanese yen appreciated against the dollar on a resurgence of fear that the recent rise in equities was little more than a bear market rally. Across the pond, European markets pared earlier gains amid a UK budget deficit of 90 billion pounds that came in at nearly triple the previous year. Britain’s economy has been hard hit by the financial downturn with unemployment at the highest in more than a decade and several financials tied in with government stakes. Also adding to grim sentiment is the IMF world economic report released today which included expectations for a 1.3% contraction for the global economy and deflation of 0.2% in advanced economies in 2009. The projection is in stark contrast to a previous report three months earlier for global growth of 0.5%. The release follows on the heels of a report by the IMF yesterday with expectations for worldwide losses to reach as high as $4.1 trillion by the end of 2010.
Also this morning, US Treasury Secretary Timothy Geithner spoke at the Economic Club of Washington and issued positive statements similar to those issued Tuesday on his optimism regarding the stress tests and TARP repayments. Geithner expects “substantial” TARP repayment and welcomes such a move as it would create more funds for use in the Public-Private Investment Program. The PPIP, announced in early February and detailed in late March has been hailed by some and criticized elsewhere. Tim Ryan, former head of the Resolution Trust Corporation that resolved the Savings & Loan crisis of the 1980s has commented positively in the Financial Times calling the plan “RTC II.”
US Markets are currently down more than half of one percent, weighed by poor earnings from Morgan Stanley that caused the firm’s stock to fall more than eight percent early in the session. Meanwhile, in the currency markets, the USD/JPY is now trading at the lowest level since the start of April and has been in a downtrend channel since topping at nearly 101.50 early in the month. On Friday, investors will react to significant releases including the UK’s first quarter GDP results and details on the stress tests currently being conducted on the largest 19 banks in the US.
