The dollar has just hit a record low against the euro and equities have extended Tuesday’s record breaking rally. And, like the broader financial markets, activity in the credit and money markets have seen a sharp spike in volatility recently stoked by inflammatory economic data and exogenous event risk that was both threatening and promising. By the end of last week, credit conditions were taking a severe turn for the worse. Lending activity was already being constricted owing to the tighter borrowing requirements following record losses reported by Freddie Mac and Fannie Mae. This was only exacerbated after indicators reported the service sector was contracting and employment fell for the second consecutive month. With dual concerns of an impending recession and deepening credit crunch, the outlook was bleak. However, when conditions seemed to be at their worst, the Fed once again stepped in with an expanded effort to revive liquidity.
[I]Do you think the Fed’s next cut has been put off? Cast your vote in the DailyFX forum![/I]
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[B]Improving outlook[/B] means the Federal Reserve could use this indicator to
support a rate hike. The opposite stands for a deteriorating outlook.
[I]For additional insight on what the Fed will do next, learn what pushed the Fed into Panic Mode. [/I]
[B]
CREDIT MARKET: HOW IS IT DOING?[/B]
[B]A DEEPER LOOK INTO THE CHANGES THIS WEEK:[/B]
The sharp correction in the premium behind default risk a week ago has been quickly retraced over the past few days. By Friday, after the round of very disappointing economic data, the cost of insuring against default in swaps surged to 188 basis points – the highest level in history. It is still too early to tell whether the Fed’s auction plans will quiet fears of a debt market on the brink.
Short-term money markets have taken the brunt of the credit market’s volatility blow. Demand for short-term debt has driven T-Bills and Libor rates to new mutli-year lows. Looking ahead, rates on the short-end of the yield curve will tell us whether the market is comforted by the Fed’s new TSFL program first. The acceptance of mortgage-backed securities for the loan and the additional $200 billion in liquidity looks promising.
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STOCK MARKET: HOW IS IT DOING?[/B]
[B]A DEEPER LOOK INTO THE CHANGES THIS WEEK:[/B]
[B]
U.S. CONSUMER: HOW ARE THEY DOING?[/B]
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[B]A DEEPER LOOK INTO THE CHANGES THIS WEEK:[/B]
[I]With economic turmoil heightening in the US, learn more about the major concerns of the Fed.
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