U.S. Market Update

Dow +217 S&P +22.5 NASDAQ +43.8

Equity markets around the world surged after the Fed announced various new lending tools that would allow them to lend up to $200B to primary dealers. Financials were the major beneficiary led by names related the mortgage market, but most stocks are well off of opening levels. FNM +5% FRE +6% C +5.8% WFC +5.5% WM +8% MS +7% GS +4% Bear Stearns has slide into negative territory as the stock seems unable to shake the recent worries surrounding it. Home builders are seeing a decent relief rally as well. XHB +2.5% Managed Care stocks need an IV after WLP hacked Q1 guidance following yesterday's close. WLP -26% UNH -10% AET -11% CI -12% HUM -20% Texas Instruments is losing ground after lowering Q1 guidance as well. U.S. yields have pushed dramatically higher following the Fed announcement with intense selling in the 2-year flattening the yield curve noticeably. The 2-year yield has climbed some 25 basis points in 24 hours to 1.70% while the 10-year hovers around 3.60%. Some of the most aggressive Fed expectations in terms of future rate cuts have lost steam. The April fed fund future projects roughly 70% odds of a 75 basis point cut where that had been fully priced in ahead of the announcement. The August contract now sees less than 50% odds of a 1.75% fed funds rate this summer where it had seen better than 90% odds yesterday. Crude made new all-time highs again overnight above the $109 handle but has since backed off back below $108 as the Greenback has firmed on the Fed announcement and higher U.S. yields. Metals markets are off of overnight highs as well but still generally posting small gains.

The USD staged a rally against the major currency pairs following the FED's announcement of new lending tools to boost liquidity and help the markets to 'function'.

The actions announced today supplement the measures announced by the FED last Friday to increase the size of the Term Auction Facility to $100B and to undertake a series of term repurchase transactions that will cumulate to $10B. EUR/USD tested a fresh all-time high of 1.5496 helped by rhetoric from the ECB's ultra-hawkish member Weber, before chatter of a 1.55 option barrier contained the upside momentum. The USD was also aided by a slight improvement in its Jan trade balance from consensus expectations to a -$58.2B reading. The USD was able to eek out its best level since the US payroll report from last Friday as stops were elected below the 1.5300 level. For the most part, the USD remains locked within its 7-day trading range, despite the recent central bank liquidity operations. Dealers note that the risk of a coordinated currency intervention is more likely on USD strength rather than weakness. The 1.4970 level would be a level to keep in mind in the EUR/USD pair and 153.30 in EUR/JPY. JPY was weaker on speculation that the Fed was forced to consider more innovative response as continued strains in credit markets threatening to deepen and prolong an incipient US recession. Thus the liquidity measures announced help to reverse the scenario of risk aversion for the time being. USD/JPY trades up180 pips at 103.25; EUR/JPY has added 250 pips at 158.20. Commodity currencies are holding steady despite oil and gold are off of pre-US opening highs. European equity markets are up 2% across the board. June Bunds are down -65 ticks at 117.40 and June Gilts at 111.23 are off 63 ticks.

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Posted in: Economy,Finance and Investment,Forex