US Market and Commodities Wrap-up

Sunday, December 21, 2008

Following the decision to allocate unused TARP money to Chrysler and General Motors, markets rallied in the morning on optimism that the government will continue to take steps necessary to limit job losses and deterioration of the US Economy. Following the initial upside, markets have pulled back and now hover slightly in positive territory. Treasury yields have seen continued upside this week, and despite an OPEC cut, Crude oil dropped well to below $35.


















Gapping higher in the open, the Dow 30 index eventually reached a high of 8787.23 before pulling back as quickly as it rose. The Index currently remains in positive territory but the volatile session is a grim reminder that investors remain uncertain about the future. Following a large rally on Tuesday after the FOMC’s larger than expected rate cut, the market retraced the gains in quick fashion and for the week there remains little upside. The action to help automakers does not necessarily solve the problems, but helps in the immediate cash dilemma they face with paying near-term debt.

















Crude has seen considerable downside this week following continued pessimism about oil demand in the near future and 2009. Seeing initial upside, Crude reached as high as $50 on Monday but began a large decline even in the face of a 2.2 million barrel OPEC cut on Wednesday. Traders don’t expect full compliance by members so the cut will likely be less effective, and further disappointment was felt when Russia refrained from pledging any commitment to cut production. Another possible explanation for the continued decline is the rise in supplies of crude at Cushing and other locations due to the large difference between spot price and future delivery prices. Crude reached a record low $33.44 earlier in the session. Other commodities, however, are hanging onto gains made in the previous week, with gold remaining well above $800.

















The 10-yr Treasury note hit a new high following the FOMC's decision to cut the Fed Funds rate to near zero, and continued to surge higher throughout the rest of the week. The yield is now barely above 2% and many wonder whether a continued rise in the price of the bond is possible or if a pullback is coming in the near future.

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