Wednesday, April 15, 2009

Market Reflections 4/15/2009

The Fed's Beige Book added to the run of good news on the economy, showing weak conditions but also signs that the pace of contraction is easing. April's housing market index offers similar indications, showing a rare jump tied to home affordability and government stimulus efforts. The Treasury International Capital report is another reason for optimism showing improving foreign interest in U.S. financial assets especially out of China and Japan.

But not all of Wednesday's news was good. The Fed's industrial production showed sharp declines that were much worse than expected and that point to sizable drop for first quarter GDP. Also not good was talk that the government's stress tests in the banking sector, to be released early next month, may show trouble, possible trouble that is helping to keep gold steady near $900 despite the extended climb in the stock market. Capital One is definitely showing some stress with the credit card issuer reporting rising charge-offs in line with rising unemployment.

The biggest surprise in the markets came from oil which showed no reaction to a huge jump in U.S. crude inventories. Oil's strength is raising talk that market players, through ETFs and hedge funds, appear to consider oil as a safe-haven financial asset. But demand for oil has yet to improve and the dollar has yet to erode due to inflation, which are apparently the two central reasons behind oil's curious stability. Oil ended little changed at just under $49.50.

Other financial markets showed limited reaction to all the news with the S&P 500 up 1.3% at just over 850. The dollar firmed about 3/4 of a cent to $1.3200 against the euro. Treasury yields edged 1 to 2 basis points lower across the curve with the 3-month yield, at 0.14 percent, betraying a significant lack of confidence in the banking system.

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