每日市场点评 --- February 20, 2008

All three major indices reversed early losses and closed the day in positive territory. The news on the economic front was mostly neutral to negative. Start with the closely watched CPI report. Both headline and core inflation came higher than expected. The headline CPI number increased 0.4%, pushing the y-o-y inflation to 4.3%. Excluding food and energy, the core CPI increased 0.3% and brought the y-o-y increase to 2.5%. Within the CPI report, food prices rose 0.7% while fuel costs were up 4.5%. Based on recent commodity price trends, we are likely to see higher inflation in these two areas in the months ahead. Separately, the housing data for January were more or less in line with expectation although Building permits, which is an indication for future construction, fell 3% to 1.048 million, a 16-year low.

The stock market opened the day in red following the negative CPI report and the plunge in latest mortgage refinance application due to higher mortgage rates. However, close to middle of the day, there appeared some buying program in the S&P futures and the cash market quickly followed. Then at around 2pm, the Fed released the minutes for the previous two Fed meetings and also offered its latest outlook to economic growth and inflation. Basically the Fed anticipated slower economic growth, worsening job market and higher inflation compared to previous forecast for 2008. But the market didn’t pay much attention to this renewed forecast as it was mostly priced in already and instead, traders focused on “substantive additional cut” mentioned in the minutes and viewed it as a warrant to at least 50bps cut in the next Fed meeting. The market continued its rally following the minutes.

The US dollar was mixed against major currencies while both oil and gold continued to move higher. The CRB commodity index inched higher and closed at another historical high. Treasuries retreated while yields were rising. It is worth noting that the yield on the 10-year notes has moved up by more than 30 bps during the past two weeks, resulting in a steeper yield curve.