-- Posted Wednesday, 22 October 2008 | Digg This Article
| Source: GoldSeek.com
Credit and Money Supply Indicators:
The injection of capital and elimination of caps on swap lines between foreign central banks and the Fed have engineered modest improvement in credit indictors over the past week.
In addition, to our close observation of Libor fixings and the LIBOR-OIS spread, we also pay close attention to the TED spread as an indicator of financial health. The TED spread has narrowed by 169 points, but the elevated reading of the VIX indicates continued fears in market. However, the improvement in the TED spread is an indication of the market slowly beginning to function.
Unfortunately, the improvement has not been paralleled by the LIBOR-OIS spread. This spread has only compressed by 60 basis points and is another indicator of continued stress in credit markets.
Commercial Paper
There is a modest signal that lending has restarted on the back of the Fed program to purchase commercial paper. Through the end of the week, the major target appears to have been the commercial community, as the non-financial community continues to suffer.
Bank Assets
Commercial banks see an increase in assets and a modest restart to lending with consumer still drawing on home equity.
Fear still pervades among financials. Banks are holding excess reserves which is an indicaton that banks are horading cash in the aftermath of the Treasury’s annoucement one week ago.
Monetary Aggregates
MZM declines while adjusted monetary base skyrockets. With velocity of money declining and Fed mopping up excess liquidity in the market, risk of inflation has substantially moderated in the near term. However, given the sharp increase in the adjusted base the market should closely observe continuing Fed action to sterilize those increases.
The Day Ahead: October 22, 2008
Day In Review:
US Fed creates $540bln new facility to relieve pressure on money market mutual funds caused by redemption requests.
Weak earnings at bellwethers Caterpillar and DuPont, as well as, Texas Instruments and Sun Microsystems were the primary catalyst for a negative day in equities
In after hours action. Apple beat earnings estimates
Flight to safety continued as the Yen continued to see multiyear highs against the Euro and saw another session of positive action vis-à-vis the dollar.
Important regional banking concerns such as KeyCorp, US Bancorp, Regions
Financial Corp and National City Corp all signaled that they may ultimately tap the
US Treasury’s plan to recapitalize the banks.
Lehman CDS settlement occurs without any collateral damage in the markets
Day Ahead
No data risk on Wednesday
Commercial Bank reserve settlement with Fed
EIA Petroleum Status Report at 10:35 EDT
Canadian retail sales and Japanese merchandise trade data at the head of a busy day in international markets
US Treasury Paulson to speak on China and the global economy
Minneapolis Fed President Stern to speak on topic TBA.
Joseph Brusuelas
Merk Investments
Chief Economist/VP Global Strategy
-- Posted Wednesday, 22 October 2008 | Digg This Article | Source: GoldSeek.com
