每日市场点评 --- March 11, 2008

What a remarkable day on Wall Street! All three major indices registered more than 3% gains, the first time since March 2003. In particular, Dow closed the day up by more than 400 points, the fourth such kind of gain in Dow’s 112 years’ history. It was the Fed that made all this happen. Before the market open, the Fed surprised the market for the second time in less than a week by announcing the creation of a new Term Securities Lending Facility. Under the new facility, the Fed will lend up to $200 billion of Treasury securities, equivalent to one fourth of its balance sheet worth, to its 22 primary deals in exchange for debt including private mortgage-backed securities starting from March 27th.

The news is regarded as a positive move by the market in at least two ways. First, it relieves some worries about further tanking in the US dollar. The US dollar hit a historical low against the Euro yesterday and an 8-year low against the yen. If the Fed were to lower the interest rate by a widely expected 75 bps before today’s announcement, the dollar could face further pressure, which in turn could cause dollar-based assets to depreciate. Indeed, today’s announcement greatly lessened the probability of a 75bps cut and the US dollar also gained some ground as a result. Second, the latest $200 billion is targeting to the weakest link in the financial system, i.e. the mortgage backed securities. The biggest issue facing the financial institutions in the latest wave of credit crunch is the lack of interests in the mortgage backed securities. It was reported that some AAA agency-backed mortgage securities could only get 70c on the dollar recently compared to around 90c in the fourth quarter. By allowing banks to use those hard-to-sell mortgage securities as collaterals, the Fed essentially is trying to prevent further fire-sales in the market.

It was not surprising that financial companies were among the best performers in today’s rally. But the gain was much broader. All 10 major sectors were up by at least 1% for the day. Despite some sell off during the middle of the day, the market kept moving higher and higher throughout the afternoon and closed at the highest level of the day. Technically, the market was quite oversold entering into today’s session so a rebound was quite deserved. Moving forward, financials are still the key and we may see some meaningful gains if financials can hold their recent lows.