March 21st, 2011 9:38 AM by Lehel S.
Treasuries and mortgages started flat very early this morning but prices fell at 8:45 when the foreign minister of Libya announced Libya will halt all military operations, probably due to the UN vote last night for instituting a no-fly zone over the country. When the headline scrolled the DJIA index jumped to +130 and the 10 yr note which was off 5/32 dropped an additional 8/32 taking the 10 yr yield up to 3.31%. Whether his comments will be taken seriously we will wait and see but it did move markets initially.
The G-7 countries early last night approved currency intervention to stop the increase in the yen, the first time in 11 yrs that there is a coordinated move by central banks to intervene in currency markets. The result has been a big decline in the yen versus most currencies including the dollar. The intervention has a target for the yen but the G-7 countries will not say what it is. Back n the 80s there were a number of times central banks intervened in currency markets, each time the interventions were short-lived and generally didn't have the intended affect.
In Japan work continues to keep the cooling tanks from over-heating. The power company saying it now has laid the power lines and hopes to have power to one of the reactors tomorrow and the others possibly by Sunday. Expects however are saying there is no assurance that when power is connected that the cooling pumps will work. No reports of additional radiation leaks overnight. News that there has been poor management and maintenance in the Japan nuclear power system for years starts the finger pointing even before the present crisis is stabilized.
There are no economic reports to deal with today, yesterday the Mar Philadelphia Fed business data was stronger than forecasts. While there was no noticeable reaction to it with other issues overriding, markets won't ignore it. The US economy still holds optimism but there is anecdotal evidence consumers may be less optimistic than in Dec when the measurements of confidence and sentiment were increasing. Higher energy and food costs are working into consumer concerns. In the UK consumer sentiment is falling on concerns about jobs and economic recovery. An index of sentiment dropped 10 points to 38, the lowest since records began in 2004.
Crude oil was higher early this morning but is now lower on the announcement of a cease fire in Libya. Gold stronger on the intervention on the yen as currency market volatility will increase over the next few weeks.
At 9:30 the DJIA opened +130, mortgage prices -7/32 (.22 bp) and the 10 yr note yield at 3.33% +7 bp. All markets re-tracing the panic movements seen early this week and last.
Week-ends are always something of an issue for traders with two days away; this weekend is even more so with Japan's problems well documented and now the Libyan situation with the UN initiating a no-flay zone over the country and then early this morning the announcement from Libya officials that they would implement a cease fire. Crude oil was up about $2.50 prior to the 8:30 announcement of the cease fire, now down $0.30, the stock market rallied and the bond market sold off on less safety concerns. Will we come out of the weekend in tact? No additional radiation leaks n Japan and the cease fire holding? Tough and risky to be in markets these days with the high levels of volatility.
We don't expect much of a rally in stocks and not much selling in bond markets today with the weekend and all the uncertainty still hanging over the markets.