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U.S Market Update

Mon, Oct 6 2008, 15:15 GMT
by Trade The News Staff

TradeTheNews.com

- Primal fear is spreading among investors this morning as European markets fall apart and the credit crunch worsens. The leading European indices are trading down around 8-9% thanks to the lack of any agreement among EU leaders at this weekend's summit to develop a coordinated plan for addressing the financial crisis. Meanwhile Brazil's Bovespa fell below 40,000 for the first time since October, 2006 before being halted, and Japan's Nikkei index closed at four-year lows around -4.3%. The DJIA and Nasdaq opened down more than 2% each and headed much lower in early trading; observers watched the Dow flirt with 10,000 and then break below this level mid morning for the first time since October, 2004. Dec Gold is trading up $40 on safe haven bids; Crude oil traded below $90 for the first time since February. The VIX volatility index has moved steadily higher all morning, heading above 50 in a sign of heightened anxiety. In any case, traders worldwide seem to have decided that the Administration's financial rescue plan will certainly not be a panacea. Credit remains frozen, with the US three-month TED spread hitting another record high above 390 basis points. Before the open chatter circulated among trading desks of an increased possibility for a coordinated ease from central banks. The Nov fed fund future is fully pricing in 50 basis points worth of cuts and are now starting to price in another 25 on top of that. The Fed did announce would increase TAF auctions to $150B each (starting today) and begin paying interest on bank reserves. Payments on required reserves will be made at the average targeted federal funds rate established by the Federal Open Market Committee over each reserve maintenance period less 10 basis points. In a separate statement, the Treasury said it is considering changes to its debt issuance, including a reintroduction of three-year notes. In a sign of things to come, multiple companies cut guidance ahead of the final earnings season of 2008. EBAY cut its Q3 revenue outlook a hair and said it would cut its workforce by 10%, citing the impact of a weaker economy.

- In currencies the session was defined by record high levels of volatility and bewilderment. One dealer noted that the action was simply "the revenge of the carry trade." The USD/JPY was at 100.25 after closing in New York at 105.30; EUR/JPY at 135.70 off almost 1000 pips from Friday and GBP/JPY was as low as 174.10 after closing at 185.55 last week. The USD was also benefiting from the lack of coordinated action from European and G7 in addressing the financial market crisis. The EUR/USD is approaching the 1.35 level, down 270+ pips from late levels in New York last Friday. The market saw little relief despite the Fed's big liquidity move.

Published on  Tue, Oct 7 2008, 13:29 GMT