On a percentage basis, the move in the Dow today was the strongest since April 2003. The market cared little about news that American Home Financial has filed for bankruptcy since that seemed inevitable after the mortgage lender laid off 90 percent of its workforce on Friday.
Although the drop in oil prices could be partially credited for the rebound in the Dow, the late afternoon surge seemed to be driven by nothing more than a relief rally. The VIX index, which is a measure of the volatility in the equity market plunged significantly after hitting a new 52 week high. If the Federal Reserve does not say anything entirely bearish, then we could see further gains in both the Dow and in carry trades which have been moving tick for tick with US equities. With no major Japanese economic data until the end of the week, this has been the primary driver of today?s recovery in the Yen crosses. The rebound in USD/JPY is particularly impressive since the currency broke below 118 and hit a fresh 4 month low in early Asian trading. At that time, the losses in carry matched the March sell-off.