Wednesday Market Wrap

Another day of uncertainty and volatility.  The risks I listed yesterday were only compounded today leading to more risk shedding.  Until we see some resolution in Japan (and to a lesser extent the middle east), I don't see much of a rebound in risk.  That said, we might see some dip buying at some point.


Some economic and news review:


Home construction plunged 22.5% in February from January to a seasonally adjusted 479,000 homes. It was the lowest level since April 2009 and the second-lowest on records dating back more than a half-century.  Single-family homes fell 11.8% in February. Apartment and condominium construction dropped 47%.  Building permits fell 8.1% last month to the lowest level on records dating back to 1960. Permit requests for single-family homes saw the biggest decline. Apartments and condos remained flat.  This, when piled on the MBA data suggest housing isn't posting a sharp rebound (at least last month as the numbers are volatile).


The Labor Department on Wednesday said the producer price index jumped 1.6% last month, following increases of 0.8% in January and 0.9% in December. Producer prices have risen an unadjusted 5.6% over the past 12 months.  Core producer prices rose a much smaller 0.2%, but it was still the third straight monthly increase. Core prices have risen a much slower 1.8% over the past year. Economists surveyed by MarketWatch had predicted a 0.7 % increase in overall producer prices and a 0.2% increase in the core rate.  Inflation in the pipeline.  Stay close to home on the duration front and watch manufacturers for their ability to pass on price increases.

Reuters reported Wednesday that Patrick Parkinson, the director of the Federal's Division of Banking Supervision and Regulation, that although asset quality was "stabilizing," the banking system was "still in the repair and recovery stage." "Around 30 percent of all banks have less than satisfactory supervisory ratings," he is quoted as saying at the American Bankers Association annual government relations summit Washington, according to Reuters.  Great.
The Federal Reserve Bank of New York bought $6.58 billion in Treasury debt on Wednesday, the latest operation of the Fed's second round of quantitative easing to support lending and spending. Dealers offered to sell the Fed $26.46 billion in debt maturing from 2015 to 2016.  $26B offered, $6.5B bought.  Gotta keep those rates down.

Fixed Income:

Another interesting day in the fixed income markets.  Housing numbers and increased risk overwhelmed the wholesale inflation numbers.

"Risk free" had another strong day as investors shed risk and bought govvies.  Seriously, Look at the long end.  Bets against the long end (like my TBT) are getting crushed.  Curve is flattening though.

Credit markets had a tough day (although trace hi/lo data would suggest otherwise).  Market traded down a bit with CDS ending at HV15 126/136 +5   IG15 91½/92 +3   HY15 101 9/16/101¾.

Cliffs, AGL and Teva were in the market.  Teva broke better, Cliffs broke wider and AGL broke tighter.


While CDS was wider, credit was up on the day using LQD as a proxy:

Equities:


Risk off!  Selloff continued.  Equities tanked mid-day but rebounded somewhat as conditions in Japan seemed to get better (debatable at best, but optimistic).

Not pretty for risk here in the states.

The sell-off was broad based, but conglomerates and tech got an extra bit of beating.  Personally think the drop in GE is overdone, but then again, I am long the name.

Global markets fared no better.


Commodities:


Commodities were mixed, but mostly down.  Gold came back as did silver and cotton got spanked.  I Don't expect much of a rebound in commodities until the damage in Japan is known and we start to get a feel for the global demand impact.

Currencies:


A decent spike in the Yen after a pretty dramatic sell-off.  Greenback is at a 15yr low vs the yen.

While the euro fell versus the dollar, it rebounded a bit late in the day.