Key News

• Americans with some stock-market investments remains bullish. Among those who say they have at least $5,000 in the market, 46% expect the market to move higher over the next year, while just 16% expect the market to fall. One-third expect the market to stay the same. (WSJ)
• Turmoil in the market for bonds backed by home mortgages is starting to infect its commercial cousins: mortgage bonds backed by office towers, hotels and shopping malls.  The cost of insuring commercial-mortgage-backed securities as measured by an index known as the CMBX has jumped since late last month. The spread on the index that tracks riskier, BBB-minus-rated bonds has doubled to 1.64 percentage points this week from 0.84 percentage point on Feb 23, according to Markit Group, which administers the index. (WSJ)
• Australia's economy grew by 2.8% in the final three months of 2006.

Key Reports Due (WSJ):
7:00a.m. MBA Refinancing Index. Previous: +1.2%.
8:15a.m. ADP/Macroeconomic Advisors Employment Estimate. Previous: +111K.
2:00p.m. Fed Beige Book.
3:00p.m. Jan Consumer Credit. Expected: +$6.5B. Previous: +$6.0B.

Quotable

“Either this man is dead or my watch has stopped.”

  Groucho Marx

FX Trading – Dead carry bounce?

With all the teeth gnashing, much of it ours, we haven’t seen all that much yet out of the yen—though short-term gains were nice if positioned.  But a longer term perspective shows we haven’t even tested the weekly uptrend on USDJPY going back to Jan 2005.  Simply put, if  the yen is the poster child for global risk reduction  i.e. yen carry unwinding and related sundry actions to reduce debt and derivatives exposure, there is much more to go downward in $-yen.

Though not unthinkable, nothing is in active markets where humans trade, it seems unlikely what we’ve seen is enough to cleanse speculative excess. So any move high in $-yen and related high-yielders we are chalking up to dead carry bounce for now. 

Jack Crooks