Saturday, May 2, 2009

Weekly Market Update (5/1/09)‏


The US economy shrank at an annual rate of 6.1% in the first quarter of 2009 after contracting at a 6.3% pace in the fourth quarter of 2008. more...

US Treasuries sold-off this week, breaking recent support levels in 10-year and 30-year yields, for several reasons. more...

Large-Cap Equities
The stock market rallied modestly this week despite fears of a pandemic flu outbreak and the government stress tests. more...

Corporate Bonds
Investment grade primary activity picked up slightly this week despite nearly a third of companies reporting first quarter earnings. more...

Mortgage-Backed Securities
A slew of economic reports suggesting a glimmer of hope for financial markets helped mortgages outperform Treasuries. more..

Municipal Bonds
Build America Bonds (BABs) finished the week tighter in spread to US Treasuries (the difference in yield between BABs and Treasuries) while the broader municipal bond market struggled. more...

The high yield market finished April as one of the best performing global assets classes. The broad high yield indices, such as the Merrill Lynch High Yield Constrained Index, were up over 11% for the month, with the lower end of the market rallying most. more...
Western European Equities
Stocks in Western Europe gained ground over the past week. The stocks with the best performance were insurances (+10.2%) and banks (+9.6%). more...

Eastern European Equities
The CECE index of equities traded in Central Europe (Czech Republic, Hungary, and Poland) gained +3.3% this week, while the Russian stock index RTS went up +0.2%. more...

Global Bonds and Currencies
Major non-US sovereign bond markets were generally slightly firmer in the past week, although yields remained within their recent ranges in most cases. more...

Emerging-Market Bonds
Emerging market dollar-pay debt spreads tightened this week. Credit spreads grinded lower on the back of equity markets maintaining recent gains and further encouraging data releases from the US. more...

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Have a great weekend!

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Friday, May 1, 2009

The cost of the Bailout to you

The International Monetary Fund has just estimated the American taxpayer’s tab for all of Washington’s bailouts, guarantees, backstops and other support of the financial system.

It’s $1.9 trillion over the next five years. $6,200 for every American man, woman and child.

In a sure sign the torch of world leadership is passing from American hands, Washington protested the estimate as way too high, faulting the IMF’s methodology. The IMF assumed 10% losses for the assets the Fed has taken onto its books. It also assumed the FDIC will have to get additional funding from Congress to rescue depositors at insolvent banks.

We, on the other hand, won’t be surprised if the IMF’s methodology turns out to be conservative.

Market Reflections 4/30/2009

The $8 billion bail-out/bankruptcy of Chrysler failed to give stocks a lasting push with the S&P 500 slipping 0.1 percent. Even with the survival of Chrysler, auto shutdowns pose a major risk to the manufacturing sector this summer. In economic data, Chicago purchasers reported solid improvement in orders but here again, future improvement will not include the auto sector. Personal income and spending data were disappointing and included another very strong savings rate, at 4.2 percent and another reflection of flight-to-safety, this time at the consumer level.

Other markets were also little changed including the dollar which held to a tight range to end at $1.3250 against the euro. Oil and gold held in tight ranges, ending at $50.99 and $888. Hog prices continue to plunge, down more than 3 percent on the day and otherwise are the only area being hurt by swine flu.

Thursday, April 30, 2009

Greenback May Lose 14% Against Loonie: Technical Analysis

By Chris Fournier

April 29 (Bloomberg) -- The U.S. dollar may depreciate as much as 14 percent against the Canadian currency by November if it breaks through a key technical level amid “steady selling pressure,” according to TD Securities Inc.

Canada’s currency, known as the loonie, is headed for its fifth weekly gain against the greenback, the longest winning streak since November 2007. Speculation that the worst of the global economic crisis may be over is prompting investors to venture out of safe havens and into higher-yielding assets, such as stocks and commodity-linked currencies.

If the U.S. dollar breaks below C$1.1764, “the downside opens up hugely over the next few months” to the upper C$1.04 area, Shaun Osborne, chief currency strategist in Toronto at TD, wrote in a note to clients today. That would be a drop of about 14 percent from yesterday’s close. He recommends selling the U.S. dollar on rallies.

The loonie strengthened 1.5 percent to C$1.2019 against the U.S. dollar at 1:58 p.m. in Toronto, from C$1.2196 yesterday. One Canadian dollar buys 83.20 U.S. cents.

The drop to the upper C$1.04 area is the “maximum technical implication of a break under C$1.1764” rather than a formal forecast and could occur in the next six to nine months, Osborne wrote in a separate e-mail.

Gains in the U.S. dollar have been met with “significant selling pressure” in four of the past five weeks, giving the market a “top-heavy look,” and patterns in the monthly chart indicate the greenback may be ready to reverse its upward trend against the Canadian dollar, Osborne wrote.

Loonie’s Parity

Canada’s dollar reached parity with its U.S. counterpart for the first time in three decades in September 2007 following a 60 percent climb in the preceding five years on the back of rising commodity prices. The loonie lost a record 18 percent last year as demand for raw materials, the source of more than half of the nation’s export revenue, evaporated.

In technical analysis, investors and analysts study charts of trading patterns and prices to forecast changes in a security, commodity, currency or index. TD Securities is a unit of Canada’s second-largest bank.

To contact the reporter on this story: Chris Fournier in Montreal at

Currencies and Economic News

In the currency market, the dollar continued to fall against the euro. Late Wednesday, the euro was trading at $1.3264 vs. $1.3141 on Tuesday.

The two big events of the day were release of GDP figures and the FOMC meeting. The former was wretched, to say the least. The Commerce Department said inflation-adjusted, seasonally-adjusted GDP fell at a 6.1% annualized rate in the first quarter, following a 6.3% decline in 4Q08.

Taken together, that represented the worst showing in six decades. Since 1947, the economy had never contracted by more than 5% for two consecutive quarters.

However, as Marketwatch reported, “Buried in details of the U.S. GDP report, a [2.2%] rebound in consumer spending and a drop in inventories bolstered optimism that the U.S. economy was on the track to recovery after a brutal first quarter. Those bright spots, combined with surprise rise in eurozone sentiment, pushed the euro higher against the dollar.”

Meanwhile, the Fed kept its target interest rate unchanged at an ultra-low 0%-to-0.25% range, and said the U.S. economic outlook has "improved modestly.” There were no changes to plans to buy Treasurys and other securities to support the flow of credit to the economy. Thus “some of the fear of additional quantitative easing anytime soon quickly abated,” said Dan Cook of IG Markets in Chicago.

“The only major difference between [yesterday’s] statement and the previous one on March 18 is that [yesterday’s] cited the fact that most evidence points to a slowing rate of economic decline. Anyone with two eyes and a brain knows this to be the case,” wrote Josh Shapiro, of MFR, Inc.

The Blue Chip survey of economists forecasts a 2% annual pace of decline in growth in the current quarter, a small positive growth rate in the third quarter, and a stronger economy by the end of the year.

Market Reflections 4/29/2009

Policy makers at the FOMC are definitely less downbeat, saying contraction is easing and that steps already taken will lead to a gradual return to growth. Stocks rallied with the S&P 500 ending near its highs, up 2.2 percent at just under 875. Having little effect were late reports that Chrysler, as part of an alliance with Fiat, will file for bankruptcy tomorrow.

The dollar firmed 1/2 cent in immediate reaction to the FOMC statement, ending at $1.3250 to the euro. With conditions stable, the FOMC did not announce any new outright purchases, a factor that hurt Treasuries where the 10-year yield rose 9 basis points to end at 3.09 percent. Gains in the dollar held down many commodities including gold, ending at $900, and oil, ending under $51. Hog prices, down about 1.5 percent, fell for a third day in reaction to the swine flu crisis.

Wednesday, April 29, 2009

Market Reflections 4/28/2009

Reports that Citigroup and Bank of America have failed the government's stress tests offset a surprisingly strong consumer confidence report that suggests better times are ahead even if current job losses remain severe. The S&P 500 ended down 0.3 percent at 855.16. The dollar softened 1 cent to $1.3154 against the euro.

The confidence report weakened demand for Treasuries where yields were up 8 basis points for the 5-year note which ended at 1.93 percent. The Treasury auctioned $35 billion of new 5-year notes in the session, part of its herculean effort to fund government spending. The quarterly refunding announcement is tomorrow at 9:00 a.m. ET.

Commodities were little changed though hog prices continued to slide on swine flu concern. Soybeans, which had been one of the biggest gainers in April, fell back on rumors that Chinese importers are cancelling orders.

Tuesday, April 28, 2009

Market Reflections 4/27/2009

Rising swine flu cases and uncertainty over the size of the problem pushed stocks and many commodity prices lower. But Monday also saw new hope for General Motors. A massive downsizing and a stock-for-debt swap sent GM shares 20 percent higher and made for a brief but wide mid-morning rally. There wasn't any calendar data in the session but Boeing's CEO offered a new description for the downturn, calling it a "once in a lifetime" event.

The S&P 500 fell 1 percent to 857.51. The dollar was up, ending at $1.3050 against the euro while the Mexican pesos tumbled 4.1 percent to 13.9060 vs. the dollar. There was little movement in the Treasury market.

Hog prices fell steeply, down 4.2 percent on the June contract. Prices of grains and industrial metals posted less severe declines. Oil seesawed with the stock market before ending just above its central line at $50. Gold held firm at $905.