Thursday, February 14, 2008

Bernanke Speaks, Emphasizes Economic Slowing

The markets are under some selling pressure in early trading, likely due to profit taking after several up days in the market.

Bernanke is testifying before Congress this morning, and basically reiterating the same comments he has made recently. Here is the jist of them:
  • Bernanke says weakening of bond insurers forcing banks to take markdowns, adding to market strains
  • Bernanke says more cuts in home building, related activity likely,softer jobs market to weigh on consumer
  • Bernanke says outlook for economy has worsened in recent months, downside risks to growth have increased
  • Bernanke says policy works with lag, stance must be assessed in light of mid-term forecast, risks
  • Bernanke says Fed will act as needed to support growth, provide insurance against downside risks - Reuters

Currently, the fed funds futures market continues to price in 100% chance of another 50 basis point cut at the FOMC March meeting.

The jobless claims fell a bit this week to 348k, which is still below levels that typically precede a recession. Also, the trade defecit fell in December, which should cause some slight upward revisions to Q4 GDP. Given these datapoints, the odds of a full blown recession have gone down in my book.

The 10-year yield is reacting positively to these economic reports, up 8 basis points to 3.78%. Asian markets soared overnight, with several regions up more than +4.0%, including Japan.

Oil is up again today, nearing the $95. This is helping the energy complex, as well as ag and infrastructure stocks. The oil index is one of the few that is actually higher on the session. Tech, financials, and retail are lagging so far.


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