The market spent the first half of Friday's session moving between gains and losses after the government said negatively to a report from the Commerce Department showing a steep drop in housing starts in the month of September to the lowest pace since early 1991. The Dow fell 127.04, or 1.41 percent, Friday to 8,852.22, after falling 261 points in the early going and rising 302 points - a 563 points range. Broader stock indicators also showed more modest declines. The Dow posted a weekly gain of 4.7 percent, while the Nasdaq and the S&P 500 closed up 3.7 percent and 4.6 percent, respectively.
Investors' mood seemed to pick up later in the session as lending rates for bank-to-bank loans edged lower, indicating that some bank fears about not being repaid by borrowers are easing. Demand for safe-haven investments like Treasury bills also decreased. Economic readings that appeared to trouble the market early in the session seemed to lose their importance as investors looked to improvement in the credit markets. The final hour of trading again proved pivotal as in much of October; stocks fluctuated as investors squared away positions for the week.
Demand remains high for Treasury bills, regarded as the safest assets around, an indication that there is uncertainty lingering in the markets. The three-month Treasury bill Friday yielded 0.82 percent, up from 0.47 percent on Thursday. That indicates a let-up in demand, though the yield has not surpassed 1 percent in more than a week.
The yield on the benchmark 10-year Treasury note fell to 3.93 percent from 3.97 percent late Thursday. The Commerce Department reported that housing starts fell more than 6 percent in September to an annual rate of 817,000 units. The figure is lower than the 880,000 units forecast by Wall Street economists surveyed by Thomson/IFR. Building permits also sank.
The report was yet another piece of evidence that the nation is struggling with a weak economy that, if the financial crisis is not solved, could weaken.
According to The New York Times, Moody’s Investors Service, the ratings agency, said credit card charge-offs rose 48 percent in August, according to the latest data on $435 billion in credit card loans that back securities that Moody’s rates. Moody’s said Thursday that it expected charge-offs, or loans written off as not being repaid, to continue to rise throughout 2009, eventually surpassing the peak rates seen during past recessions.
The August charge-off rate — which measures the amount of balances written off as uncollectible as an annualized percentage of total loans outstanding — surged 48 percent, to 6.82 percent, compared with 4.61 percent in the same month a year earlier, Moody’s said in a report. It was the 20th consecutive year-over-year increase in the charge-off rate. The charge-off rate was 6.36 percent in July.
Here is the summary of this week: the Dow soaring 936 points on Monday, slipping moderately Tuesday, sinking 733 points Wednesday, rallying 401 points Thursday and then slipping moderately again on Friday.
The last week low was tested successfully yesterday and a double bottom bullish reversal was formed but a follow through is still needed.
If the risk-aversion continues, investors will liquidate their positions. Unwinding the carry trade benefits the yen, and in turn, this fund. Some experts and strategists feel that the yen will continue to be the strongest currency in the world. We should watch out while the yen has “safe haven” appeal, it’s not like other safe havens in that there’s no explicit guarantee backing a currency. The yen is backed by Japan’s account surplus, which remains strong, although it’s shrinking.
Accordingly, CurrencyShares Japanese Yen Trust ETF (FXY) can be considered to be bought.
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- The Next Meltdown: $950 bn Worth of Outstanding Credit-Card Debt—Much of it toxic
- The New York Times: Credit Card Charge-Offs Rise 48% in August, October 17 2008
- ETF Trends: ETF Spotlight: CurrencyShares Japanese Yen (FXY), October 17, 2008 03:00 pm
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