Market Reflections ... Friday - Jul 11, 2008
Friday unfortunately was a wild, unsettling day for the financial markets which braced themselves briefly for a massive failure of Fannie Mae and Freddie Mac. Fear eased after Treasury Secretary Paulson, in response to rumors that the agencies face imminent collapse, said the government has no immediate plans for a bailout. Reuters reported later in the day that Fed Chairman Bernanke will allow the agencies to borrow directly from the discount window, an option that helped limit share price losses in Fannie Mae and Freddie Mac. Share prices in the agencies swung wildly in enormous volumes with Freddie Mac ending down about 3 percent and Fannie Mae down more than 20 percent. The Dow industrials fell 1.1 percent on the day to end just over 11,100.
Oil also swung wildly, testing a record $147 before closing at $144.73 for a $3 gain. Rumors that Israel will attack Iran continued to push prices up. The dollar fell sharply, down 1-1/2 cents to a near record low of $1.5926 against the euro. Despite all the uncertainty, money did not move into Treasuries where yields instead jumped sharply, up 18 basis points for the 2-year note to 2.60 percent. This is good sign that suggests, at least for now, that risk aversion is not at a premium.
Economic data were pushed to the background but proved very significant in the session. Trade data showed strong exports of capital goods, tripping a run of upward estimates for second quarter GDP growth with some calling for as much as a 3% gain. Inflation news in the session is simply alarming. Import/export prices surged due to the affects of oil while inflation expectations in the Reuters/University of Michigan climbed further. The report's consumer confidence measure remains very near all time lows.
Friday unfortunately was a wild, unsettling day for the financial markets which braced themselves briefly for a massive failure of Fannie Mae and Freddie Mac. Fear eased after Treasury Secretary Paulson, in response to rumors that the agencies face imminent collapse, said the government has no immediate plans for a bailout. Reuters reported later in the day that Fed Chairman Bernanke will allow the agencies to borrow directly from the discount window, an option that helped limit share price losses in Fannie Mae and Freddie Mac. Share prices in the agencies swung wildly in enormous volumes with Freddie Mac ending down about 3 percent and Fannie Mae down more than 20 percent. The Dow industrials fell 1.1 percent on the day to end just over 11,100.
Oil also swung wildly, testing a record $147 before closing at $144.73 for a $3 gain. Rumors that Israel will attack Iran continued to push prices up. The dollar fell sharply, down 1-1/2 cents to a near record low of $1.5926 against the euro. Despite all the uncertainty, money did not move into Treasuries where yields instead jumped sharply, up 18 basis points for the 2-year note to 2.60 percent. This is good sign that suggests, at least for now, that risk aversion is not at a premium.
Economic data were pushed to the background but proved very significant in the session. Trade data showed strong exports of capital goods, tripping a run of upward estimates for second quarter GDP growth with some calling for as much as a 3% gain. Inflation news in the session is simply alarming. Import/export prices surged due to the affects of oil while inflation expectations in the Reuters/University of Michigan climbed further. The report's consumer confidence measure remains very near all time lows.
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