每日市场点评 --- March 27, 2008

The market continued to give back gains from the previous week. At today’s close, the S&P500 is in red for the week and month. With only two more trading sessions remaining in March, the widely followed index is on track to post losses for five months in a row, a streak last seen in 1990. Unlike previous few days, we did get some positive economic news. However, Oracle’s disappointing revenue results for its latest quarter along with concerns over first quarter earnings for financials deterred buyers from getting too enthusiastic.

The final reading on the fourth quarter GDP came unchanged from the previous expectation. Despite more economists worrying about recession, today’s GDP report confirmed that the economy was still expanding modestly in the last quarter of 2007. It is very likely we are going to get a negative reading on the GDP for the current quarter when the first reading is coming out late April. And clearly many parts of the economy are already in recession if not in depression. But technically, we need the upcoming April to June quarter to be negative as well before we can officially call it a recession. The final GDP report was revised slightly from the previous reading. For instance, consumer spending was revised up from 1.9% to 2.3% while prices were revised down from 2.7% to 2.4%. The final GDP report also shows that the fourth quarter GDP got a big boost from exports, which reflected both strong growth overseas and a weak dollar. In fact, the GDP would contract by 0.4% without contribution from exports. Separately, the weekly jobless claims dropped by 9K to 366K while economists forecasted a drop to 370K. In addition, the continuing claims also dropped from 2.85 million to 2.845 million. But again, one week’s data doesn’t constitute a trend and the market will pay close attention to next Friday’s Non-farm payroll report.

All sectors were down in today’s trading except for those defensive names such as health care and utilities. Technologies and financials were the biggest losers of the day. But interestingly, commodities didn’t rally further despite continuing strength seen in the CRB commodity index. The US dollar regained some ground against the euro and the yen after the better-than-expected economic news. Treasuries were sold off following the completion of the Fed’s first Term Securities Lending Facility (TSLF) auction. It is worth noting that the bid-to-cover ratio came at 1.15, below a typical ratio of 1.8 to 1.9. And the stop-out rate in the auction was 0.33%, just 8 bps higher than the minimum 0.25% set by the Fed. It shows the lack of interests of TSLF among the primary dealers. In a related report published by the Fed, the 20 primary deals borrowed averaged $32.9 billion a day from the Fed’s discount window in the week ending on Wednesday, up $19.5 billion from the previous week. So does it mean that the lending from the discount window is enough to solve the liquidity crisis faced by many financial institutions? We probably have to wait a little longer. The second TSLF auction is scheduled to be held on April 3 and we should have more clues by that time.