Closing Comments
Equities started the day lower after AIG announced Q4 write-downs near $15bln. Major indices continued to sell off throughout the session, pushed lower by a 15-year low in Michigan Consumer Confidence and a worse than expected Chicago PMI. Both Dow and S&P Futures were down over 2.5% while the Nasdaq was down more than 2%. A slight increase of in Personal Consumption at 0.4% did little to help markets. The plethora of FED Speakers today did little to help as well.
The most poignant FED comments came from the St. Louis Fed’s Poole, who lashed out at Fannie and Freddie saying the GSEs’ financial state was among his top concerns. Boston Fed President Rosengren said he felt the U.S. economy would avoid recession while Lockhart of the Atlanta Fed said that subprime was contagious to all financial markets. Recent Fed comments about the FED needing to stand ready to retract rate cuts in order to prevent bubbles were echoed today by Chicago Fed President Evans.
Crude and Gold both reached record highs overnight of 103.05 and 978.50, respectively. However, neither was able to match those numbers throughout the session. Crude did however remain above 101.00 for the entire session. Precious metals stayed in positive territory as well with Silver cracking 20.00 for the first time in 28 years.
Flight to quality choked fixed income yields for a third consecutive day with the 30yr up 1.8% now yielding 4.4% and the 10yr up 1.4% with a yield of 3.519%. The2yr yield at 1.63% is the lowest since ’04. The short end of the curve was decently bid except fro the 4week bills whose yield gained 3 bps to 2.08%. The 3 and 6 month bills are both yielding 1.83%. Fed Fund futures now show a 70% chance of a 75 bps cut on March 18th despite some rather hawkish comments from the Fed’s Charles Evans and Bill Poole.
The USD sell off continued on Friday with the Greenback falling vs. all major currencies except CAD. USD/JPY fell to a 3yr low at 103.83 and closed 10 pips under the 104 handle; USD/JPY is down nearly 3.5% this week. USD/CHF dropped 1% on the day and is down nearly 4% on the week. EUR/USD finished flat on the day at 1.5194 and is up nearly 2.5% on the week. Cable also finished flat on the day at 1.9885 and is up just over 1% this week. The USD is marginally lower on the day and is down 2.3% on the week.
On Monday, Philly FED President Charles Plosser will speak in Arlington, VA at 8:00am. At 10:00, Jan. Construction Spending data will be released at Commerce, expected at -0.7% from -1.1% in Dec. Also at 10:00, the ISM Manufacturing Survey comes out, expected at 48.4 after 50.7 in Dec. Treasury Secretary Paulson will speak in Arlington, VA at 10:00 as well. FED Governor Randall Kroszner will speak in DC at 2:00pm.