Opening Comments September 16 2008

Prices of Treasury coupon securities, on balance, registered small losses in overnight trading but in the context of the historic price advances yesterday the losses are minimal and even meaningless. The yield on the 2 year note has increased by 2 basis points to 1.72 percent. The yield on the 5 year note is unchanged at 2.53 percent. The yield on the benchmark 10 year note has edged higher by a basis point and yields 3.40 percent. The yield on the Long Bond has climbed 3 basis points to 4.05 per cent. In overnight trading the Long Bond flirted with the 4.00 percent level as I did see it at 4.02 percent around midnight New York time.Stocks in Asia plunged in response to the plunge in equities in the states and in response to the downgrades of AIG and WAMU after the close of trading in New York. Most major Asian indices have declined around 5 percent. The Nikkei fell that amount and registered a 3 year low. The Hang Seng fell 5.5 percent. IN South Korea the index tumbled about 6 percent and the Aussie index touched a 2 1.2 year low as it slipped 1.3 percent.

European equities are, on balance lower by about 1 percent. And at this ungodly hour US equities are close to flat.

There is a real economy which generates economic activity in spite of the carnage in the financial sector.

In Germany inflation fell 0.4 percent in August following a 0.7 percent rise in July. YOY inflation registered a gain of 3.3 percent YOY after gaining 3.5 percent in July. Eurozone inflation fell 0.1 percent month on month in August and rose 3.8 percent YOY. The YOY rate declined from 4.0percent in July.

Core CPI was up 2.6 percent in August (YOY) and rose from the 2.5 percent of the previous 3 months.

UK CPI touched a 16 year high in August as it registered a gain of 0.6 percent MOM and a YOY gain of 4.7 percent.

The German ZEW survey of Eurozone sentiment posted a better than expected -41 following -55.7 in the prior month. The survey did not capture the events of the last few days as the financial world experienced a major nervous breakdown. The FOMC meets today and will release a statement detailing the results and conclusion of that meeting. The tectonic plates which lie below the financial world have shifted since the group last convened. Financial conditions have tightened and fear is omnipresent. The real economy in the US and in its major trading partners is slowing. The labor market is weak and one could use the adjective “plummeting” to describe the price action in the commodity markets. In addition, the much maligned dollar has staged a dramatic rally and has surrendered very little of those gains in response to the Lehman bankruptcy.

I think the Fed will leave rates on hold (barring a cataclysm today) and the statement will omit worries about inflation and will signal the FOMC’s concerns about the downside risk to growth.

Trading today will once again be volatile and will depend on market perceptions of the state of AIG and WAMU.

I believe that Goldman Sachs releases its earnings this morning and participants will want to pore over the details of that report.

Strap yourself in and enjoy the ride.

Originally published at Across the Curve and reproduced here with the author’s permission.