Finexo Market Updates

Monday, October 6, 2008

• The general theme is: Credit Crisis spreading to Europe. The German government just bailed out Hypo Real Estate for EUR 50B. The Danish government has just followed with Irish example by creating a universal deposit insurance scheme covering all deposits and debt in the Danish banking system.

• The ultimate outcome is likely to be a slow-motion run on the banking systems of non-universal deposit insurance scheme countries, which will force all countries to do full coverage. In other words, the tax payers will end up with the bill anyway... as long as no new capital is alleviating the insolvency issue.

• Global indicators are showing an extreme contraction of economic activity. Global growth is still likely to be positive, but only around 2.5% vs. +4% in recent years.

• Monday, credit market spread were still widening - indicating still more contraction. Risk-willingness is on the retreat, if there is anything left at all. JPY, CHF and USD currently strongest, as Carry Trades are unwinding and the markets seeks USD liquidity.


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