Friday, February 29, 2008

Negative Financial Headlines Weigh On Stocks

The market is back under heavy selling pressure, after some negative headlines out of the financial sector weigh on investor sentiment.

AIG took a huge $11.1 billion write-down on assets last night, and reported its largest loss ever. This morning, UBS said financial companies ae likely to write-down as much as $600 billion, a figure that dwarfs the current $160 billion in write-downs we have seen so far.

Additionally, there was a news report this morning that the bailout talks for Ambac (ABK) have hit a "snag". The combination of these news items was enough to spark heavy selling in the indexes, which had enjoyed a multi-day relief rally.

The Fed has already hinted about lower rates to come, and now the market is pricing in even deeper cuts. The fed funds futures are now pricing in a 62% chance of a 75 basis point cut at the March 18th meeting, up from just a 2% chance last week. And 50 basis points is now fully priced in.

Asian stocks were lower across the board last night after the Yen spiked to new highs vs. the dollar, and sparked selling. Carry-trade unwind? You know I have been harping on the Yen, and how its recent rally hasn't mattered but likely would at some point.

Oil is trading only slightly lower at $102, but profit-taking in the energy complex has all of those stocks down. But every sector I follow is currently lower.

Weak economic data is once again beginning to weigh on bond yields as well, with the 10-year yield falling another 12 basis points today, back down to 3.59%.

That leaves the 10-year only 17 basis points off of its multi-year low made in January at 3.42%. If the bond market can't hold that 3.50% level, I would expect the recession talk to heat up again, not that it ever really went away.

Let's see if the bulls have anything left in their tank to erase some of the early damage in the markets.


Post a Comment

<< Home