Sunday, October 3, 2010

Market Review Friday/Sunday

Yeah, I didn't get to posting the recap on Friday (or anything since), but sometimes a fella has work outside the blog to do.  Anyway, here goes:  A quiet Friday in bonds - primary and secondary markets were light compared to recent days,equities were up a bit, and US$continued its fall.



Fixed Income:


Secondary volume was light on Friday as only $15B of straight corporate debt changed hands.  Adv/DEC ratios for IG and HY were 1.05 and 1.03, respectively.  Ig still has some room IMHO, as does HY, although high yield looks like its getting heady although fund flows into both are still strong.





The curve steepened a bit, with 30yr bonds trading down while other maturities traded up marginally.  QE2 (or the equivalent) ought to help put a floor under prices (see article below).  I think that govvies still have room to move up given the somewhat lackluster economic data we have seen recently and the policy goal of increasing employment and stabilizing housing.



Elsewhere in bond market news: 
  • China offered on Saturday to buy Greek government bonds when Athens resumes issuing, in a show of support for the country whose debt burden pushed the euro zone into crisis and required an international bailout. Premier Wen Jiabao made the offer at the start of a two-day visit to Greece, his first stop on a tour of Europe, and also said he wanted to boost shipping and trade ties with Athens, underscoring Beijing's use of economic strength to win friends.  "With its foreign exchange reserve, China has already bought and is holding Greek bonds and will keep a positive stance in participating and buying bonds that Greece will issue," Wen said, speaking through an interpreter. 
  • Federal Reserve policy makers are now debating how to deploy tools for more unconventional easing as two top officials indicated action may be needed to lower unemployment persisting near 10 percent.
    “Further action is likely to be warranted unless the economic outlook evolves in a way that makes me more confident that we will see better outcomes for both employment and inflation before too long,” New York Fed president William Dudley said yesterday. His comments, following Chairman Ben S. Bernanke’s statement on Sept. 30 that the Fed has a duty to aid the economy, indicate that the outlook has weakened enough for action, said former Fed Governor Laurence Meyer. Dudley, vice chairman of the Fed’s policy-setting Open Market Committee, said additional securities purchases can have a “significant” effect on the economy.
     

Equity:



Stocks rose modestly as higher-than-estimated consumer spending and confidence were somewhat offset by a drop in manufacturing. Financial stocks rebounded, and energy firms rose as crude oil futures hit a seven-week high














Growth - value continues its divergence generally, what is interesting is that in large cap space, value is making a run at growth.






Currencies:


Reserve Bank of Australia will have their interest rate announcement tomorrow (10/4).  Due to the hawkish stance of policy makers, we might see a 25bp increase in the benchmark rate to 4.25%.  This should help support (and drive) the Aussie due to its high yield.

Key Pairs:


Watch the Euro as it has been testing highs.  It is off slightly in Asia (as of this writing).  I like the yen vs. euro, A$ and C$ vs. US$.  One thing that could throw the wrench in these though is if Europe rolls over again (still?) and investors keep showing the love to the US cap markets.








Asia is currently pointing to a higher US open.  Good luck this week, lets be careful out there.

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About Me

A student of the markets that has held portfolio management, analysis and trading positions for over 15 years.