Conditions in the credit market showed a modest improvement this past week despite the ongoing tally of damage exacted by subprime losses at banks and insurers. Over the past few days, there were few headlines that should have evoked confidence from lenders. In fact, from the corporate world, the first quarter earnings season brought another round of major write downs from the largest banks. JP Morgan, Bank of America, Merrill Lynch and Citi all reported sharp declines in earnings and credit-related losses. Such an improvement under fundamental duress suggests lenders and investors may be growing accustomed to the steady write offs and that these losses are being viewed as past events. If this is the case, growing confidence may finally begin thawing the lending freeze and eventually stabilize the financial markets.
[I]Be sure to join DailyFX Analysts in discussing the Watch What the Fed Watches latest report in the [/I][I]DailyFX Forex 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.
[B]CREDIT MARKET: HOW IS IT DOING?[/B]
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A DEEPER LOOK INTO THE CHANGES THIS WEEK:[/B]
[B]FINANCIAL MARKETS: HOW ARE THEY DOING?[/B]
[B]
A DEEPER LOOK INTO THE CHANGES THIS WEEK:[/B]
Traditionally, when the equity markets advance, volatility will decrease. This has been the situation with stocks this past week. The Dow’s break above resistance happened to coincide with a drop in the S&P 500 volatility index to its lowest level since November of last year. What’s more, this drop in the VIX has broken the steady rising trend that has sustained the volatility reading since the beginning of 2007. On the other hand, a put-call ratio reversal has kept its own trend intact. This sets the direction and volatility readings at odds with each other.
[B]U.S. CONSUMER: HOW ARE THEY DOING?[/B]
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[B]
A DEEPER LOOK INTO THE CHANGES THIS WEEK:[/B]
Economic data centered on the health of the economy was relatively light last week, but one forward looking indicator has single-handedly countered the wave of bearish sentiment that has overtaken the US economy recently. The leading indicators composite (used to forecast growth over the coming three to six months) rose for the first time in six months. While this indicator hasn’t reversed speculation of a recession, it does support some policy makers’ forecasts for a short-lived contraction. Next week’s GDP number will decide the credibility of this outlook.