SUMMARY. The point of maximum panic was endured in the Autumn, now there are signs that the low point for the stock market is close by, and there are also tentative signs that the economic downturn is slowing.
In the autumn of 2008 we felt the time of maximum panic was being endured, but not necessarily the final low for markets, and so it has unfolded. That there is now less panic, despite new lows, plus faltering downside momentum, can be measured in a number of ways. For example, at the time of the panic there was higher volume and more shares hitting new lows. Similarly, where the stock market panic dominated the media in the Autumn, even the front pages of the tabloids, that is not the case now – there has been a subtle shift.
From a UK perspective, it would also be more encouraging if there were positive signs, even tentative ones, for the UK economy. Well, there are, and they are barely finding their way on to the front page of even the FT.
The speed with which the UK economy slowed was remarkable, as UK businesses almost overnight reduced expenditure and held on to cash. UK plc adjusted rapidly to the new reality.
The rise, albeit small, in retail sales volume in January, following a surge in pre-Christmas sales, was not the alarming statistic you might have expected. Different survey data for February suggests a renewed slowing down, but taken as a whole the surveys suggest a slowing of the downturn. Even so, these are backward looking indicators, and those which are forward-looking have more value.
The PMI indices are in this category, providing a gauge of current activity and the outlook from the sharp end. For example, in manufacturing the pace of decline is slowing. The index for the services sector, the single largest contributor to the UK economy, was higher in February than January, against expectations, and was at its highest level since September. These indices are still at very low levels, and aren’t suggesting imminent recovery, but nor do they suggest the downturn is cataclysmic.
The Nationwide confidence survey also picked up from January. The latest RICS housing survey highlights how buyer enquiries have picked up, though this is not yet feeding through to purchases. With the supply of houses available for sale steadily falling, if enquiries feed through to sales, prices should begin to stabilise.
None of this indicates that recovery is imminent, but they do indicate that the downturns momentum is slowing. As for the stock market, the FTSE 100 index could have a bit further to fall (in fact our very short term technical indicators suggest just this). Yet, with the Bank of England also about to start buying up bonds, further stabilising the financial system, it could be that the building blocks are being put in place to allow a significant recovery in the stock market from not far below current levels.
