The lacklustre and soggy markets remain like a rabbit in the headlights; afraid to rally and unable to sell off in the traditional sense. Mind you it’s worth noting the dire performance of our old chums AIG (down 34%) and WaMu (down 29%) on the day. WaMu’s rating were cut to junk status by rating agency Fitch last night as it seems that they are the ones left with no date for the ball.

Today Market Moving Stories

• Political machinations over the TARP continue. House Democrats seem to have reached agreement on their wish list for the bill (discussed below).
• US data yesterday provided a timely reminder of the underlying US economic problems. Existing home sales prices fell by 3.4% on the month. This is the fastest pace of decline ever recorded.
• The South China Morning Post reported overnight that “Mainland lenders ordered to halt interbank deals with US firms“. This has since been denied but is still causing ripples in a few places. It is clear that problems in the US are causing serious distress in Asia and that’s why the bailout plan needs to go through ASAP to reassure Asian governments. The success of the bailout may depend on Asian countries buying into it.
• There was a run on the Bank of East Asia yesterday, one of the biggest retail banks in Hong Kong and a key player in the region. Rumours were spread by mobile phone saying it was in trouble. Although it did have some small exposure to Lehman and was put on negative watch by Fitch (due to trading manipulation), its solvency was never in doubt.
• Here’s an early reminder that the US short selling ban expires on October 2nd. Don’t be long financials stocks (or indeed probably any equities) when it expires! Actually I’d say that you will see a move to sell the market the day before in anticipation of a wave of pent up frustrated selling pressure being unleashed.

Negotiations Continue Over The Bailout Plan
Let’s first look at what the Democrats want in their version of the bailout:

• limit executive pay (likely to prove wildly popular with the banks!),
• allow the Treasury to take equity stakes in companies that get aid,
• strengthen the oversight of the program (recall there was none in Hanks’ over hasty 3 pager which he subsequently lied about),
• provide aid to help their constituent homeowners avoid foreclosure,
• allow bankruptcy judges the authority to modify mortgages for struggling borrowers.

Chris Dodd (Senate Bank Chairman) and Barney Frank (House Financial Services Committee Chairman) will hold talks with House and Senate Republicans on these proposed amendments. Polls are showing that the public are against the bill and both McCain and Obama have issued statements saying that the plan is “flawed”.

But there is clout as President Bush addressed the nation last night on TV in doomsday mode. There is a sense of urgency behind this now so something substantial is likely to be passed by the weekend. Watch for a knee jerk boost for equities if this happens.

The trouble with Bush of course is that a few of us remember the last time he told a whopper and sold the world a pup.

Data Today. ECB Still Clinging To Monetarism
The main focus this morning will be on one of the ECB’s twin pillars with the release of the monthly M3. This money supply data is expected to be 9%. Of interest will be to see if there has been any tailing off of loans to the private sector. The ECB remains convinced that they are an island unconnected to the rest of the world’s problems. They unbelievably see a Eurozone recovery in Q4 (no cheap jokes from me on which year!).

We may also start to see the first of the German Lander trickle out their August inflation numbers. Inflation is the other key pillar of the ECB. Note yesterdays IFO survey from Germany is pointing to a SEVERE downturn VERY soon.

In the day ahead from Stateside we get US durable goods numbers (-1.9% expected), new home sales (450K units) and weekly jobless claims (+ 450K) all at 13.30.

Equities

• Davy’s cut their bank estimates on AIB to reflect what they call “higher impairment charges.”
• JP Morgan have a research note out recommending European stocks OVER their US counterparts.
• The Daily Mail’s (NOT my favourite read) parent group is down after saying that the slowdown has hit advertising revenue. Hardly a surprise?

My Grade On Hank And Ben’s Performance