The DJIA and S&P500 pushed out to fresh 16-month highs this week as the first quarter lurched towards its close and volume sagged. With an underlying bid in equities appearing unwavering, markets have forced traders to be leery on the short side and pressured investors to keep putting cash to work, even in an atmosphere of dollar strength. Over in the European disunion, the Greek drama has come to what appears to be an intermission. German Chancellor Angela Merkel won a high-stakes game of poker with her Euro Zone colleagues, who have agreed to bring in some IMF funding to help fund a stand-by package for the Hellenic Republic. Another sovereign debt cliffhanger also seemed to resolve itself this week, as Dubai's government agreed to pump $9.5B into failing development group Dubai World, helping to further calm investors. Fed Chairman Bernanke once again reiterated that the US economy still needs accommodative policies and economic slack warrants low rates for an "extended period." In Washington, selected drug and hospital names benefitted from the final passage and signing of the health insurance despite numerous state AGs lawsuits, while members on both sides of the aisle engaged in escalating rhetoric with Chinese officials related to exchange rates and various other business topics. Note that Former Fed Chairman Alan Greenspan offered a warning on Federal deficits, stating that rising Treasury yields are "the canary in the coal mine" and that Federal debt is clearly influencing bonds. These comments came at the end of a week which saw the US 10-year yield rise some 20 basis points and trade back to the top of the range is has seen since the market collapse in late 2008. For the week, the DJIA gained 1%, the Nasdaq rose 0.9%, and the S&P500 climbed 0.6%.

Selected financial stocks have risen sharply this week as the Obama Administration rolled out its latest plan for curtailing foreclosures in housing. The White House has been quietly negotiating with banks on the details of the program, which is focused on aiding homeowners with underwater mortgages, for some time. On Thursday the Treasury said the two-year plan would make it easier for the GSEs and other lenders to restructure mortgages and would look to restructure 2-3 million distressed mortgages, utilizing $50B in funds originally authorized under the TARP program. Bank of America announced that it would forgive loan principle of up to 30% on certain mortgages, although no other major banks have disclosed similar plans as of yet. At the end of 2009, there were about 11.3M US households that were underwater, about 24% of total US households. Citi, BoA and JP Morgan are up 5-10% this week. Meanwhile, shares of mortgage insurers have gained even more sharply, with PMI up 50%, RDN up 30% and MTG up nearly 20%.

Notable moves were seen in the tech sector. Mobile handset chipset manufacturer Qualcomm raised its guidance for next quarter substantially on much improved revenue streams in licensing and chip businesses. Taiwanese smartphone name HTC said its earnings in the coming quarter would exceed expectations on robust demand for phones. Oracle's Q3 results and guidance came in a slightly above expectations and the firm's guidance was its strongest forecast in some time. Smaller tech names are also looking bright: Linux software firm Red Hat beat expectations on strong growth in subscription revenue, Integrated Silicon doubled its earnings guidance for next quarter thanks to growing DRAM demand and advantageous pricing and SSD hard drive specialist SMART Modular exceeded expectations and offered very strong guidance for next quarter.

The news was mixed for the delicate US housing sector this week. US new home sales fell to their lowest level ever in February, while existing home sales data declined very slightly from January levels, in line with expectations. The NAR said that the bad weather in February may have masked underlying demand as closings were postponed by winter storms and buyers couldn't get out to look at homes in some areas. Homebuilder Lennar reported a smaller than expected quarterly loss in its Q1, while the losses at KB Homes were nearly twice the expected amount. KB's backlog is up sequentially, however, and its cancellation rate continues to fall. Note also that the Fed's Bullard commented that weakness in housing data makes him nervous in using asset sales as an tool when the Fed executes its exit policy.

US Treasury markets opened on solid footing on Monday, with yields quietly drifting around the middle of a month long range. By Wednesday, however, concerns were swirling that rates were poised to move higher. Each the 2-yr and 5-year coupon auctions saw uninspiring bid-to-cover ratios accompanied by several basis point tails, fanning fears that the huge wave of government debt supply is beginning to affect Treasury prices. The auctions came in the wake of news out of interest rate swaps markets that investors were actually paying more for private sector debt than that backed by the US government. Throw in the impending end of the Fed's MBS purchases set for next week, increasing tensions between US and China on a host of economic/trade related issues, and a government that continues to debate and pass legislation predicated upon dramatic increases in spending in the face of ballooning deficits; the environment was ripe to push US yields up towards the loftiest levels seen since the darkest days of the financial crisis. The US benchmark 10-year gained 20 bps on the week and briefly traded above 3.9%. The 2-year ticked above 1.1% before backing off some 5 bps. The shape of the US curve didn't change much with as 10-2 spread still hovering around 280bp, but the spread between the German Bund continues to widen towards levels not seen since 2007 surpassing 70 bps.

The week in currency trading began on a subdued note as European leaders continued to send out conflicting signals over aid to Greece ahead of Thursday's EU Summit. Tensions within the EMU were highlighted by comments from the Greek Deputy PM, who accused Germany of letting its banks to speculate against Greece in order to achieve a weaker euro (which aids German exports). The spread between the Greek 10-year bond and the corresponding German 10-year Bund jumped over 30 bps to test above 350bps ahead of the summit as concerns intensified that Greece might walk away from the summit empty handed. Intra-Euro Zone rhetoric hardened battle lines over how to proceed. Other peripheral debt concerns ballooned after Fitch cut Portugal's sovereign ratings on Wednesday. By mid-week the euro was ignoring better economic data to test 10-month lows against the dollar after German Chancellor Merkel appeared to triumph over other Euro Zone officials in her attempts to involve the IMF in the Greece rescue package. The ECB's position on the IMF appeared to go through a quick evolution: initially ECB rhetoric seemed to indicate the bank believed IMF involvement would be a troubling development for the euro. ECB Chief Trichet minced no words in stating that IMF aid for Greece would be "a very bad idea," but later backed away from this statement, saying he had been misunderstood. Later the ECB's Gonzalez-Paramo noted that IMF involvement does not conflict with Euro Zone rules and treaties. EUR/USD ended the week off its worst levels above 1.34.

With the April 15th publication of the US Treasury's semi-annual currency report just around the corner the valuation of China's currency has been a hot subject this week. There has been growing political pressure to name China a "currency manipulator" in the report, and senior US senators Chuck Schumer (D-NY) and Lindsey Graham (R-SC) urged the Treasury to take this step. Schumer has threatened to have the Senate pass a bill to punish China for currency issue by May. The Chinese have reacted coolly to overheated comments out of the US. Chinese Vice Commerce Minister noted that China was willing to strengthen communication with the US over the valuation on the yuan and PBoC advisor Fan Gang warned that a stronger yuan would not help US employment and might undermine the US economic recovery. In another interesting development, Premier Wen said early in the week that China's March trade balance deficit might $8B in deficit, which would be China's first monthly trade deficit since April 2004 (note also that China's February trade surplus hit its lowest level since March 2007).

The yen initially benefited from risk aversion and probed the 90 handle. However, sentiment soon turned against the JPY as dealers discussed press reports that Japanese insurance companies would increase dollar buying to invest in overseas bonds. Dealers also cited interest rates as a factor adding to the firm tone in USD/JPY. Meanwhile US 2-year rates moved back above the 1.08% level while the corresponding JGB yields were less than 0.2%. USD/JPY tested one-month highs above 92.70, then probed the key weekly pivot point of 92.30, which represents the current three-year downtrend line in the pair. Downward pressure on Japanese inflation continues to ease, as the February CPI data hit a nine-month highs. Speaking after inflation report, Japan's Finance Minister Kan called for additional measures to address deflation but also acknowledged slowing pace of declines and denied rumors of additional fiscal steps to support the economy.

The main event for sterling was the initial presentation of plans for trimming the UK's FY11 budget. Early in the week GBP/USD managed to hold mostly above 1.50 but remained vulnerable ahead of the budget release following softer than expected inflation data for February. Following the release of the budget sterling tested two-week lows around 1.4870 following Chancellor Darling's budget speech. Although he highlighted that UK budget deficits would be smaller than previously forecasted (with an overall debt level nearly £100B smaller by 2013-14 than expectations in last year's budget), the comments failed to convince markets that Labour could improve the UK's dire fiscal situation. Major rating agencies will now review the budget to see if Britain's "AAA" ratings can be maintained. An EU deficit report stated that the economic assumptions in the document were a bit over optimistic.

In Australia, RBA Deputy Governor Lowe forecasted additional hikes and warned that any delay in tightening could be costly. Regarding the AUD's prospects, Lowe said the currency over the next few years would remain above the average seen over the past decade. He urged the government monitor against a speculative housing cycle and calling for higher rates because of appreciation in the resource sector. Fixed-income markets were notably impressed with Lowe's bullishness, as OIS-derived expectations for early April RBA tightening rose about 10 points to near-60% chance. New Zealand's Q4 GDP registered its first increase since mid 2008. Speaking after the GDP report, NZ Finance Minister English said domestic economy is still facing challenges and has serious imbalances. The New Zealand Dollar continues outperform the aussie, with AUD/NZD reaching three-week lows around 1.2850.

Several emerging market central bank decisions were also in focus. The South African Central Bank surprised the market with a 50bps rate cut while the Czech Central bank stated that its next move could be a cut after keeping its repo rate steady on Thursday. The Brazil Central bank stated outright that it has reached a consensus to raise rates at its next policy meeting.

Trade The News Staff
Trade The News, Inc.

Legal disclaimer and risk disclosure

All information provided by Trade The News (a product of Trade The News, Inc. "referred to as TTN hereafter") is for informational purposes only. Information provided is not meant as investment advice nor is it a recommendation to Buy or Sell securities. Although information is taken from sources deemed reliable, no guarantees or assurances can be made to the accuracy of any information provided. 1. Information can be inaccurate and/or incomplete 2. Information can be mistakenly re-released or be delayed, 3. Information may be incorrect, misread, misinterpreted or misunderstood 4. Human error is a business risk you are willing to assume 5. Technology can crash or be interrupted without notice 6. Trading decisions are the responsibility of traders, not those providing additional information. Trade The News is not liable (financial and/or non-financial) for any losses that may arise from any information provided by TTN. Trading securities involves a high degree of risk, and financial losses can and do occur on a regular basis and are part of the risk of trading and investing.