My Diary 542 --- The Dangers Approaching

Trading Diary (March 31, 2009) --- The Dangers Approaching

My judgment on last Wed/Thu – TAKE PROFIT and wait for a 10% pullback to decide what to do – seem to be right call. At the end of day, this news-driven rally plus some tentative sign of economy stabilization have failed to defend Hengseng above 14K and SPX over 800.

I think markets clearly sense the dangers approaching, given 1) Poor earnings outlooks: Not only banks are warning March wasn’t as good as Jan and Feb, but the earning expectation for 1Q09 S&P are -35.6% yoy; 2) Bond may suffer in 2009: GM news suggests that bond holders may be the 2009 victims as equity holders were already beaten hard in 2008. Also, Fed’s QE exercise O/N suggests that their buying didn’t match the market expectations and the constant supply; 3) More concerns over Europe: I reemphasize EU as a wary as I saw a bank bail out in Spain, the D/G of Ireland (AA+) and Hungary(BBB-) by S&P and a continued debate about ECB policy shifts.

I think with G20 going to meet in London, the world is still struggling with much trouble and less clear-cut on policy responses. The ability for the world to get out of this economic crisis will require more than the action plans of China and US…Now go back to home market, ‘HIS is always having troubles with 14000. Today, I expect some recovery in Chinese Financials as Temasek and BoA having "no plans to offload". But, HSBC should continue seeing selling given its the last day of trading on the rights. In addition, it is also Q-End and the "window-dressing" chant will surely be raised once more…In general, HSI will edge lower to 13300 as ADRs remained weak, major support to be watched is at 12,800 which could be a near-term supporting line

Overseas Market Reviews

Overnight, global equity markets declined 3.8% with -3.5% in US, +3.8% in EU, and -4.5% in Japan. Stocks fell 3.5% on balance in EMS. Elsewhere, UST yields decreased with 2yr lost 6bp to 0.84% and 10yr by 5bp to 2.71%. The 2yr yield is lower 15bp compared to two weeks ago and 10yr is down 24bp. US mtg rates have fallen by a similar amount: the 30yr conforming FRM rate is down 18bp versus 10 days ago to 4.93% according to Bankrate. DXY has strengthened 1.5% over the past week, while EUR closed at 1.320 (-0.7%) and YEN at 97.3 (+0.6%). 1MWTI oil dropped nearly $4 to $48.41/bbl.