Office is closed for New Year Holiday.

Market is closed for New Year Holiday.

2008 is finally in the history book. It will be remembered as one of the most unusual, shocking, tiring, and eventful years in the financial history. The Sub-prime crisis, what was firstly unveiled in February 2007 and mostly concentrated in one corner of the credit market, turned into a full-force financial crisis following the Lehman Brothers collapse and a global recession in 2009 seems inevitable. Interestingly, the US, the country that started the Sub-prime crisis and was the centre of the recent financial crisis, fared relatively well compared to others although its 38.5% drop is the worst in seven decades. The so-called BRIC countries all suffered losses in excess of 40%: Russia down 67%, China down 67%, India down 52% and Brazil down 41%. It shows that the world is increasingly inter-connected these days and no country is immune from world economic crisis. 
Let’s take a look at the three key indicators: 1. VIX: closed at 40 compared to 41.63 yesterday; 2. The euro/yen cross: closed at 126 compared to 127 yesterday; 3. The TED spread: closed at 131 bps compared to 144 yesterday.
All 10 major sectors finished the session higher without obvious leadership, showing today’s rally is likely to be driven by program trading activities. The CRB commodity index rose more than 5%. The US dollar was mixed against most major currencies while treasuries dropped. The three-month US LIBOR was closed at 142 bps. The VIX index dropped 2 points. The market breath was positive on both NYSE and Nasdaq and the volume was light.

The market had a nice rally in the second final session of the year. However, one shouldn’t pay too much attention to the ups or downs these days as the volume is extremely light towards the holiday. The economic news continued to offer no clue of recovering. The S&P Case-Shiller 20-city housing index fell by 18% from a year ago while the 10-city index tumbled 19.1%, the biggest decline in its 21-year history. It looks as if there is no end of housing slump. But we should remember that not too long ago, the opposite view prevailed as it seemed nothing would prevent house price from skyrocketing. We would like to point out that for the fourth week in a row, the MBA Market Composite Index is higher by more than 20% year-over-year. Admittedly, it is mostly driven by refinancing activities, which has increased almost 100% over the past year. But record low mortgage rates will eventually attract new buyers into the market. The Fed has just selected four management firms to purchase $500 billion MBS in the market and that should press the mortgage rates further in 2009. Already, there are some isolated stories in California that buyers have to pay over 100% of asking price for properties.
Let’s take a look at the three key indicators: 1. VIX: closed at 41.63 compared to 43.90 yesterday; 2. The euro/yen cross: closed at 127 compared to 127 yesterday; 3. The TED spread: closed at 144 bps compared to 145 yesterday.
All 10 major sectors finished the session higher by at least 1%, showing today’s rally is likely to be driven by program trading activities. The CRB commodity index dropped 0.2. The US dollar was mixed against most major currencies while treasuries were mixed with the yield curve flattened. The three-month US LIBOR was closed at 144 bps. The VIX index dropped 2 points. The market breath was positive on both NYSE and Nasdaq and the volume was very light.

The market ended this Monday modestly lower. It will be an extremely light week in terms of trading activities and economic news. With only a few days remaining for an exhaustive year, a few quite sessions certainly won’t do much harm. However, other parts of the world are not so quite as tensions in the Middle East and Southern Asia grabbed most of the headline news. Gold and crude oil, two usual hedges against wars, soared during the past few sessions as a result.
Let’s take a look at the three key indicators plus the one credit indicator: 1. VIX: closed at 43.90 compared to 43.38 last Friday. It is not surprising to see VIX remain calm during the past few sessions as the market is quiet during the final sessions of the year. However, options on the VIX indicate higher volatility in the months ahead, which means more volatility ahead; 2. The euro/yen cross: closed at 127 compared to 129 last Friday. The unwinding of the carry trade seemed to slow down recently. If it can hold, it will give market some extra space to breathe;3. The TED spread: closed at 145 bps compared to 145 last Friday. Conclusion: holding. 4. The iTraxx basket spread: closed at 671 bps vs. 684 bps in the previous week. Conclusion: improving.
Most major sectors finished the session modestly lower. Energies and basic materials advanced as crude price soared more than 6%. The CRB commodity index rose 0.6%. But it was still off more than 10% month to date. The US dollar was mixed against most major currencies while treasuries were mixed with the yield curve flattened. The three-month US LIBOR was unchanged at 145 bps. The VIX index was little changed. The market breath was negative on both NYSE and Nasdaq and the volume was very light.