Weekly round up

Tuesday’s Fed meeting left investors with more questions than answers, which they had the Fed would provide through its policy statement.
Wall Street had hoped that the central bankers would focus on economic weakness especially with the sub prime fiasco that has rattled the markets in recent weeks. Instead the Fed continued to emphasize on inflation, while only acknowledging that “credit is getting tighter” like we didn’t know that!

The marked dropped sharply but then recovered to end the day in positive territory. A lot of investors will however continue to remain bearish on instruments that are tied to mortgage backed securities.

On Wednesday, Cisco (CSCO) reported- not only did it post impressive numbers but it raised guidance for next quarter. John Chambers was quoted as saying that he believes that this was the strongest economy he had seen in years. This bullish sentiments and guidance for raised the technology sectors overall outlook and all boats were lifted by the Cisco’s rising tide.

Bond yields have dropped further, lifting prices. The 10 year yield is now down to 4.75% as investors flee to safety.
Looks like the Yen carry trade is unwinding as the yen continues to raise. Investors who scooped up the Yen on the cheap and reinvested in higher yielding markets across the world are forced to unwind as the yen rises, consequently drying up liquidity. Remember back in February, unwinding of the Yen carry trade was a one of the factors that caused a slide in the Asian markets.

On Thursday, news of the suspension of withdrawals from three funds at France’s BNP Paribas did not angur well with the markets. Apparently, those funds valued at some $2 billion cannot be valued due to the mess in US credit markets.

This week saw the largest cordination effort by central banks worldwide to inject liquidity into their money markets in an attempt to soothe ongoing woes. The ECB alone dished out $131 billion to aid troubled firms with the Fed adding $35 billion in reserves to buy mortgage backed securities in an attempt to divert the looming crisis.

Friday: US stocks still closed higher for the week albeit the volatile run.


Heavy week ahead: Major reports expected to signal the health of the US economy. Retail sales, PPI, CPI, housing starts and initial jobless claims all being reported. I think the numbers will indicate that the mortgage crisis might have slowed down the US consumer but not stopped them. Watch out for the CPI & PPI data which are a good measure of inflation trends and might provide some clues to the outcome of next months FOMC meeting.