每日市場點評 --- March 7, 2008

All three major indices continued their slide on this Friday. The Dow Jones Industrial Average Index became the latest major index that has breached its 52-week low after dropping 146 points for the day. As for the week, the market lost about 3% and extended its loss for the year to double digit. The most obvious explanation behind today’s drop was the disappointing Nonfarm Payroll report for February. Let’s take a look at the report first. Total Non-farm payrolls fell by 63K, the most in five years. Economists forecasted a small increase instead. Payroll numbers for the previous two months were also revised down. So far in 2008, we already have two consecutive months of decreasing payrolls and the latest weekly jobless claim trend pointed to a third one down the road. But it was an understatement that the weaker-than-expected job report should be solely responsible for today’s drop. Fed’s latest move of increasing the sizes of its Term Auction Facility to $50 billion from $30 billion may well contribute to some of the volatilities observed in the market today.

The news came out at around 8:15am and the futures market initially regarded it as good news and the Dow futures immediately shot by 100 points. However, traders then realized that the latest move by the Fed also means less chance of an inter-meeting cut. The futures dropped like a stone and at one point, the Dow futures were down by 150 points from up 100 points just minutes ago. This all happened within the 15 minutes before the Non-farm report was released. It seemed that the market was not convinced that more Term Auctions can solve the credit and liquidity issues currently perplexing the banking industry. However, we would like to point out that although it might take some time for this to work out, the size of the latest injection of liquidity into the banking system should not be ignored. At $200 billion as currently proposed by the Fed, it equals almost 15% of the total GDP of the US if we use a money multiplier of 10. Indeed, the financial sector was one of the best performers of the day.

The US dollar was mixed against major currencies. Treasuries continued to rally as they were seen as the only safe place recently. The futures have fully priced in a 75bps cut in the Fed’s next meeting on March 18th. Commodity retreated a little bit from recent highs with noticeable weakness in the agriculture products. The VIX index, which is often used as a gauge of fear level in the market, didn’t change much. Indeed, we may see more volatility ahead.