每日市場點評 --- December 14, 2007

The market simply cannot find its bottom. Again, financials are leading the way down. All three major indexes dropped by more than 2% for the week. It appears that the Fed is losing credibility among some investors after the surprising auction news announced less than 24 hours after the Fed meeting. But in retrospect, the Fed is right on at least one thing – inflation. Following yesterday’s surprisingly high PPI number, today’s CPI number also surprised the market on the up side. More important, the core CPI number was also higher than expected, indicating that higher energy price and food price may indeed have spread into other areas. Although one month’s data didn’t represent a trend, it did increase the chance of a word that many economists feared so much back in the 1970s, that is, stagflation. For now, the market is expecting a 80% chance of 25bps cut at the Fed’s next meeting, down sharply from just two days ago.

Treasury bonds dropped following the inflation news while the US dollar got another boost with diminishing chance of further rate cuts. This in turn caused many commodity prices to tumble for the second day in a row. Next Friday will bring us the last quadruple witching option expiry day of 2007 so some extra volatility should be expected. In addition, we are also going to get the first of a series Fed special auctions on Monday and several brokerages are also set to report their earnings throughout the week, including Goldman on Tuesday, Morgan on Wednesday and Bear on Thursday. It is indeed going to be another busy week. Stay tuned!