Trading Diary (January 08, 2009) --- Here It Comes!

As discussed two days ago regarding the Real Test, here is comes! Overnight WTE ADP employment (-693k vs. cons -495K), Intel (-23% sales decline) and Time Warner (1st loss in 6 years) warnings, weak export numbers of out Taiwan (Dec exports -42% yoy vs -23% in Nov; Imports -45% vs -14% in Nov) and scandal of Satyam all caused a sharp correction in US stocks. Of course, there is a few shining points as Monsanto +18% after reporting BTE earnings. I think NFP prints tomorrow will officially mark this recent 8% rally as a bear market one.

Back to home market, we start to see the similar malaises. I think the India Satyam tape will impacts EM investment sentiment in general. Corporate wise, Levono (992) announced possible material loss in 4Q08. CX (293) issue new profit warning (Hedging loss 7.6bn with cash portion 300mn). Huaneng’s (-9.9% yoy in 4Q) generation data is also a cloudy page. Along with overnight 14% pull back in crude and -2-3% ADR performance; HK is like to lose another 300pts today.

Looking at the big picture, equity reversed the New Year rally with SPX-3%, DJIA< 8800 level, VIX over 43. EUR/USD back to where we started 2009 at 1.3640.  Oil goes back to levels where OPEC decided to cut supply. USTs look abnormal with avg 5bp upward move in yield curve. Is there something else going on here as last night US 3Y $30bn auction was 2.21X bid/cover, 1.2% high?  So far, we have seen two big events trades globally in 2009 --- 1) EUR negative and Oil catalyst trade, suggesting by  Israel invaded Gaza and then Russia cut NG supply to Ukraine; 2) The reflation trade inspired by Fed ( ZRIP, Spread targeting) and $800bn Obama stimulus. The faith to the US New Year solution has encourage trader to make some macro trades like Long Gold & Commodities; Long Equities; Short EUR; Short US bonds…It seems the Short trades get carried over, but Long trades are getting sold off… Will this imply another big market correction?

Oversea Markets Review
Global equities took a step back yesterday, with -3% in US and UK and 1.2% in EU. EM Asia also dipped lower on balance, while equities gained 1.7% in Japan. Elsewhere, UST yields moved up a bit with 2yr and 10yr both rose 5bp to 0.81% and 2.49%, respectively. US conforming mortgage rates have remained stable at 5.23% according to Bankrate. IMWTI oil plunged $6 on news that crude stocks rose MTE last week. Oil closed at $42.63/bbl. USD declined 1% vs both YEN and EUR to 92.7 and $1.364.