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Trade the News - U.S. Market Update
U.S. Market Update
Dow -137 S&P -17 NASDAQ -30.8
- Equity markets remain unable to find any traction as weakness in the financials persists. The XLF is off another 2.6% after more write down rumors emanated out of Europe overnight. Higher commodity costs remain in the forefront of traders' minds after Dec gold approached $850 and Crude ticked near $99 in the overnight session. Energy futures have retreated a bit after weekly inventory data but the higher prices continue to weigh on the Dow Jones Transportation Average -2.5%. Bonds markets continue to experience a flight to safety but it remains clear inflation concerns are lurking. The U.S. curve remains steeper with the long bond future actually lower while the 2-year future is higher by 4 ticks. The spread between the 2 and 30- year has widened out to 106 basis points while fed fund futures prices are little changed through the rest of this year.
- The USD resumed its broad slide in value against the majors and commodity-relayed pairs with comments from China providing today's catalyst. Top China political adviser Cheng Siwei stated that China should diversify its $1.43T FX reserves into stronger currencies like Euro. The advisor tried to clarify the statement that it did not necessarily mean buying Euros, but the damage was already done. EUR/USD hits all-time highs (even synthetic calculations) of 1.4731 before consolidating. USD/CHF probed below the 1.1260 handle for the first time since Oct 1995. GBP/USD tested 2.1070 for its highest level since Jan 1980. With oil testing the$98.50 and Gold near its all-time high fixing level of $850 per oz in the early European open, the CAD hit its best level since the mid 1950s at 0.9055. AUD tested 0.9398. The weak USD has shifted the focus on potential central bank intervention. The White House declined comments about the soft USD sentiment. US Treasury Sec Paulson: Reaffirmed US commitment to strong USD
German officials have cited the anti-inflationary component that a strong Euro processes. Despite the benign neglect, FX dealers are focusing on Gulf Arab USD Pegs. Any suspension of Gulf pegs will add to USD woes in terms of global confidence.
European markets were volatile as subprime jitters took equities off their best levels and send flows into government bonds. The rotation out of stocks into bonds were initiated by renewed rumors that European banks were to announce potential subprime-related write-downs.
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