Weekly market Update October 9, 2009

HEADLINE NEWS WEEK ENDING 10/09/09

Overview
Statements made this week by US presidential advisor Lawrence Summers and Federal Reserve Chairman Ben Bernanke underscore our views that the US economic recovery will likely be sluggish and that the Fed is planning to exit from its credit easing programs. more...http://payden.com/library/wmu/newsletter.pdf

US MARKETS
Treasury/Economics
US Treasuries traded significantly lower this week, with the long end of the yield curve, mostly 10-year and 30-year yields, underperforming all other maturities. more...
http://payden.com/library/wmu/newsletter.pdf
Large-Cap Equities
The stock market finished the week higher for the first time in three weeks on strong corporate earnings and better-than-expected economic data. more...http://payden.com/library/wmu/newsletter.pdf

Corporate Bonds
Investment grade primary activity kept investors hankering for more, as small infrequent issuers tapped the market. more...http://payden.com/library/wmu/newsletter.pdf

Mortgage-Backed Securities
Mortgages outperformed Treasuries as yields rose sharply on profit taking and hawkish rhetoric by Fed Chairman Ben Bernanke. more...http://payden.com/library/wmu/newsletter.pdf

Municipal Bonds
After enjoying a stellar summer rally, yields on municipal bonds rose sharply this week. This was especially notable in the face of nearly unchanged short and intermediate maturity Treasuries. more...http://payden.com/library/wmu/newsletter.pdf

High-Yield
The capital markets over the next few weeks will be focused on the third quarter earnings season, which has just begun with Alcoa’s earnings. more...http://payden.com/library/wmu/newsletter.pdf

INTERNATIONAL MARKETS
Eastern European Equities
The CECE index of equities traded in Central Europe (Czech Republic, Hungary, and Poland) gained +2.1% this week, while the Russian stock index RTS went up +12.0%. more...http://payden.com/library/wmu/newsletter.pdf

Global Bonds and Currencies
Bond yields rose from their recent lows in most major non-US sovereign markets over the past week. Several factors were at work pushing yields higher. more...http://payden.com/library/wmu/newsletter.pdf

Emerging-Market Bonds
Emerging market dollar-pay debt spreads tightened this week. Risk appetite once again returned to global financial markets and most equity indices rallied on the back of strong economic data and a better-than-expected start to the earnings season in the US. more...http://payden.com/library/wmu/newsletter.pdf

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Market Reflections 10/8/2009

A 1 tenth downtick in the Australian unemployment rate to 5.7 percent flashed a signal of global recovery, tripping a rush out of the U.S. dollar and into commodities including gold. Talk is heavy that interest rate differentials will more than ever favor Asian currencies and the euro as economies in the regions strengthen and interest rates begin to rise. The U.S. economy, where the unemployment rate is 9.8 percent and climbing, appears to be lagging though today's economic news was positive, headed by a significant decline in jobless claims and a run of positive chain-store reports that suggest the consumer, despite the weak labor market, may be showing some life.

The dollar index fell a very steep 0.7 percent to 75.97 for a new 12-month low. A weak dollar points to price inflation making gold once again a center of attention. Gold peaked at a new high at $1,061 before edging back in afternoon trade to $1,056. Equities rose on the day, up 0.8 percent on the S&P to 1,065, helped in part by the strong economic news and by yesterday's strong earnings from aluminum producer Alcoa.

Market Reflections 10/7/2009

Stocks drifted Wednesday with the S&P ending slightly higher at 1,057. The biggest news hit after the close as aluminum producer Alcoa posted a better-than-expected bottom line for the third quarter but one helped by cost cuts not rising demand. Shares of Alcoa slipped in after-hours trade. Gold held on to its big gains, ending at $1,042 while oil slipped about $2 to end just under $70 following a big build in gasoline inventories. The dollar firmed slightly which kept a lid on commodities.

Market Reflections 10/6/2009

A report from U.K. newspaper "The Independent" pushed gold to record levels and tripped heavy losses in the dollar. The report, denied by all parties, says the Arabs and Chinese are working together with the Russians and the French to reprice oil, replacing the U.S. dollar with a basket of currencies and commodities including -- gold. Gold jumped more than $25 to end near its highs at $1,041. Not only would gold benefit from being included in a repricing mechanism, but it is currently benefiting, in its role as an alternative currency, from questions over the future of the dollar. The dollar index fell 0.4 percent to 76.33.

Commodities rose across the board though the gain in oil was very subdued, up 50 cents to $71.00. Traders noted that supply and demand, which are currently unfavorable for oil, will ultimately determine its value, more so than the items used to price it. Underscoring the glut of petroleum products in the market, U.S. oil company Sunoco is closing a refinery and cutting its dividend in half.

Gold shares soared in extremely heavy volume with SPDR Gold (GLD) up 3% at $102.28 and Barrick (ABX) up 5% at $38.84. The S&P rose on the day, up 1.4 percent to 1,054 despite a run of strategist warnings that the market is due for a correction.

Market Reflections 10/5/2009

Stocks rallied Monday supported by a strong gain for the ISM's non-manufacturing survey, results that show a jump in new orders and in output. Though employment continues to lag, some businesses in the survey are beginning to talk about new hiring. The S&P 500 rose 2% to 1,040. Commodities rallied along with stocks with oil ending at $70.50 and gold once again well above $1,000 at $1,015. The move away from safety made for a 0.3 percent decline in the dollar index to 76.68.