每日市場點評 --- February 7, 2008

All three major indices finished a choppy day in positive territory, ending the 3-day losing streak that wiped out more than 500 points from the Dow. Most news of the day was negative. After the bell yesterday, Cisco Systems issued a revenue warning not only for the current quarter, but for several quarters ahead. This morning, the closely watched initial jobless claims came worse than expected. More important, the previous week’s number was revised downward while some had expected an upward revision due to the holiday effect. Although historically initial claims usually need to move well above 400K to be associated with a recession, the current trend shows we may get closer to that point. The Pending Home Sales came a little weaker than expected but didn’t really surprise the market. In fact, if one day we get a better than expected news in the housing sector, the market will pay attention. Most chain retailers also reported their same-store results for January this morning. The results were quite mixed here. Nonetheless, the retailer sector had a great day and provided strong supports to the overall market throughout the day.

Interestingly, unlike equity market that was relatively quiet, the bond market experienced one of the most volatile sessions today. Long-term bonds, especially the 30-year bonds, tumbled following a rather weak auction of the $9 billion 30-year bonds. Most 30-year bonds dropped around 3% for the day, a decline not seen since April 2004. As the yield is moving opposite to the price for bonds, both 30-year bonds and 10-year notes saw their yields to jump by 16 bps before the day was ended. Since most mortgage rates are tied with long-term treasury yields, a continuing weakness in the long-term bonds could potentially mean higher mortgage rates ahead, which certainly is not great news for the housing market.

Across the Atlantic Ocean, the ECB kept its key interest rate unchanged in its latest policy meeting overnight while BOE lowered its key rate by 25bps. Both came no surprise to the market. However, the euro got materially weakened against the US dollar today. Some attributed the weakness to the comments made by the ECB President Trichet that for the first time in five years didn’t suggest raising interest rates after recent weak economic reports. I’m not too sure whether ECB will cut its interest rate any time soon considering it just saw its consumer prices to rise the most in 14 years in January. But it does appear that the US dollar may have found a short-term bottom and some meaningful appreciation against most other major currencies is quite likely in the months ahead. Interestingly, gold price didn’t drop today despite a strong performance in the dollar. Although it is still too early to make any conclusion, this may suggest something to the gold price moving forward.