每日市場點評 --- August 5, 2008

Bulls are in driver’s seat on this FOMC session. All three major indices gained the most in four months with the Dow advancing 331 points. As usual, the statement following the FOMC meeting grabbed most attention. There is little change in today’s statement compared to June’s, when the Fed also decided to leave rates unchanged. But some traders pointed out some subtle differences in the final paragraph. In June, the Fed said that “downside risks to growth remain, although they have diminished somewhat”. In the latest statement, the Fed didn’t mention diminishing downside risks. Also in June, the Fed said that “upside inflation risks have increased” and they didn’t mention that part this time. The changes were seen as a stance that the Fed would probably leave rates unchanged for longer than some in the market had expected entering today’s FOMC meeting. Although that reasoning may have some basis, we don’t believe the Fed will keep rates at the current level for very long time. And if the Fed does keep interest rates unchanged until next year, then the market has to get ready for very aggressive Fed actions during the first half of 2009. Separately, we also received some better than expected economic news. The ISM services index for July came at 49.5 vs. 48.7 expected. Most sub-components were little changed from the previous month but we did note that the Employment component rose to 47.1 from 43.8 and the prices component dropped to 80.8 from 84.5. Higher employment and lower price levels are something that the market would like to hear from this point on.

Basic materials and energies continued to lag in a market when most sectors were up 2% or more. Crude price dropped to the lowest level in 3 months and closed below $120 per barrel. On the winners’ list, we had names like consumer non-clyclical and financial. The former was greatly aided by dropping oil prices recently. The CRB commodity index continued to slide and closed below the 400 level for the first time since early April. The US dollar continued to strengthen against most major currencies, especially those commodity-oriented currencies. Treasuries dropped slightly with yields creeping up. Following today’s FOMC meeting, the odds for a rate hike in September dropped slightly and currently were at around 25%. The VIX index tumbled 10% and closed barely above 21. The market breath was decisively positive on both NYSE and Nasdaq with decent volume.