Friday, February 27, 2009

Market Reflections 2/26/2009

President Obama has proposed a $1.75 trillion budget deficit for fiscal 2009, a deficit that would represent 12 percent of GDP, the highest percentage since World War II. Among items, the budget calls for $750 billion in new support for the financial sector, news that lifted bank shares in the session. But the market as a whole failed to get a lift. Not helping were deep declines in durable goods orders and steep increases in jobless claim data, the latter pointing to the deepest declines yet for the monthly employment report, the next of which will be released a week from Friday.

It was another choppy session for stocks which opened higher despite the bad economic news only to fall back through the afternoon. Once again, very strong support was evident at the 752 level on the S&P 500, below which traders warn are heavy sell orders. The index closed right at that level, at 752.82 for a 1.6 percent decline on the day.

The dollar ended little changed at $1.2738 against the euro. Treasuries were a bit softer with the 10-year yield rising 5 basis points to 2.99 percent. The day's $22 billion auction of 7-year notes, the first 7-year auction in 16 years, drew only moderate demand in contrast to the run of auctions earlier in the week.

Oil rose more than $2 on the April WTI contract to end at $44.60. Traders attributed the rise to short covering in reaction to the morning gains in the stock market. Gold fell another $20 to $945.20, also in reaction to early gains in the stock market.

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