NY ROUNDUP – Friday, November 21, 2008

HIGHLIGHTS

NBC: Obama to tap NY FED Geithner for US Treasury Secretary
US House Speaker Pelosi: Willing to give automakers deal if they show a plan
Chicago FED Evans: US in “substantial” downturn
Philadelphia FED Plosser: Housing to bottom next year
FED Lacker: Primary goal is keeping money stable

COMMENTS
Let’s not be concerned about why equities rallied back today – but just enjoy the moment. S&P500 up 6.3% to 800, oil up $1 or 2% to $50.45, USD down about 0.5% to DXY 88.19, bonds down 30Y off 4 points, yield up 21 bps to 4.30%; 10Y 3.21%, 2Y 1.09%. The manic depression that has spread from the banks to over the real economy needs a break. Towards that end we did get Obama leaking his Treasury pick NY FED Giethner to calm markets. If that is all it takes lets get a few more leaks please. This all has a tender balance to it – we needed a rally but not too much or government actions assumed will be delayed – like Goldilocks picking the porridge. Further the bears will be watching this weekend’s headlines. Not all of the stories to track over the weekend will be bad – and having had another miserable week its best to think about the future. 1) APEC summit. Picture the lame-duck Bush with Rice in Lima. The chance for anything positive seems small but there are big issues – consider how the oil price drop has squeezed the finances of Ecuador, Venezuela. Consider the pressure on trade and trade barriers – as Russia moved to restrict foreign autos Monday. Consider the devaluation of FX and its impact – KRW, INR. Plenty of things to discuss in Peru. 2) Citigroup. The WSJ, NY Times, and almost any other new agency has filled pages with speculation. What happens on Sunday matters – many expect either a merger or an AIG like bailout. Most also fear more equity dilution, more toxic assets dumped into the FED balance sheet. 3) Latvia. The rumors about the Baltics have been going on for weeks. The chance of another Iceland has been the fear and many think this will come to a head this weekend. SEK weakness was the proxy for Baltic pain. The 10.59 close in EUR/SEK reflects much has already been priced. 4) Rate cuts. Expect the market to lock in on PBOC and talk of 150 bps easing. Expect more from Asian central banks, more stimulus from Europe. More talk about the FOMC and quantitative easing. 5) Autos. The car business is under the microscope not just in the US but globally. Expect more talk of fiscal support from Canada, Europe, even Asia, but most people will see headlines from Congress and the Big 3 pushing their agenda for a “bridge loan” Most see something coming in December now post Pelosi comments, but sooner the better. 6) Month end. Grey Thanksgiving, Black Friday. Next week will also bring month-end, the start of holiday shopping, a GDP revision, the usual month-end flows, more fears of hedge fund redemptions. The biggest story may be the fears of how bad retail sales will be in the holiday. Estimates have been -10% to -25%. Bottom line: This was a welcome rally back in risk assets that matched the bounce overnight in Asia. The move is predicated on future actions – so the size of the move today has to be just right – not too much to let officials off the hook for their panic but just enough to soothe the fear of the market so that Monday won’t be the reverse of today. FX closes with this in mind – EUR 1.2570; JPY 97.80; AUD .6310; CAD 1.2770 – all are stuck in the weekly ranges closer to mean rather than the tail.

CURRENCIES
Cross Low High
EUR/USD 1.2436 1.2638 Close: 1.2505
USD/JPY 94.44 95.98 Close: 95.28
EUR/JPY 118.00 120.76 Close: 119.15
GBP/USD 1.4702 1.5060 Close: 1.4779
EUR/GBP 0.8370 0.8507 Close: .8461
USD/CHF 1.2175 1.2293 Close: 1.2240
EUR/CHF 1.5282 1.5419 Close: 1.5306
AUD/USD 0.6158 0.6305 Close: 0.6179
USD/CAD 1.2750 1.2952 Close: 1.2869
NZD/USD 0.5236 0.5357 Close: 0.5276

One thing the market always respect is the important Holidays…