Tuesday, October 07, 2008

Credit Markets Show Small Signs of Easing Strain

The market got a big bounce at the open, but is struggling to hang on to those gains. Big tech stocks like AAPL and GOOG are still negative, which is weighing on the Nasdaq.

The Fed announced it is creating a Commercial Paper Funding Facility (CPFF), which will provide liquidity for the strained commercial paper market. Banks and corporations rely on commercial paper for short-term borrowing, and this market has been under pressure as investors have flocked to Treasuries and away from money-market funds.

The CME also announced a joint venture to create a regulated clearing market for credit derivative swaps, one of the culprits blamed for much of the financial morass this year.

Across the pond, Australia cuts its benchmark rate by 100 basis points, twice as much as expected. Hopefully this will become the template for the upcoming G7 meeting. Already, Israel has followed suit and cut its benchmark rate by 50 basis points.

The surprise rate cut by Australia helped lift most Asian markets overnight. The dollar is getting a breather today, which is helping commodities. Oil is up a couple of bucks, back above $90. The 10-year yield is also higher, to 3.51%.

After hitting its highest level since October 1987 yesterday, the volatility index (VIX) is -8% lower today, to a still elevated level of 47.82. The VIX won't be back to "normal" levels, signaling investor fear has subsided, until it gets back below 30.



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