Overview
• Equity markets staged a rebound towards yearend, rising 5% in the last two days. This did not change the fact, however, that 2008 was the worst year for financial markets since the Depression with the S&P 500 finishing down 38%. On the first trading day in 2009 the S&P 500 continued the positive development, rising 3.2%.
• Bond yields in the US have risen slightly on the back of improved equity market sentiment. The US 10y bond yield is up 25bp to 2.41. Euro yields are broadly unchanged.
• On 30 December, the Fed announced details of its MBS programme to buy USD500bn mortgage securities. It will start in early January and expects to be completed by June.
• Money markets have eased a bit further as the Euro 3m LIBOR-OIS spread has fallen from 129bp to 11bp since Christmas. The year-end passed without difficulties.
• FX markets were quite volatile over the Christmas holiday. EUR/USD traded up to 1.436 but is lower again at 1.39. EUR/GBP was getting close to parity as it rose to 0.98 on 29 December but is now lower at 0.959. USD/JPY has risen to 91.8. EUR/SEK is back down to 10.73 after reaching 11.40 over Christmas. A similar pattern has been in place for EUR/NOK going to 10.15 over Christmas but falling now to 9.57.
• Oil prices have risen from USD39/bbl to USD46/bbl due to the escalation of the Israeli- Palestinian conflict and lower-than-expected oil inventories in the US.
