Morning Report

Posted on March 14, 2012 by Brent Nyitray

Vital Statistics:

Last Change Percent
S&P Futures 1390.7 0.0 0.00%
Eurostoxx Index 2574.8 18.0 0.70%
Oil (WTI) 106.48 -0.2 -0.22%
LIBOR 0.4737 0.000 0.00%
US Dollar Index (DXY) 80.5 0.307 0.38%
10 Year Govt Bond Yield 2.28% 0.16%

S&P futures are flat this morning after yesterday’s furious rally on the back of the FOMC comments. Europe is playing catch-up. Bonds continue to sink as the market re-asses the probability of QEIII.  The 10 year has clearly fallen out of its 140-144 trading range, and it looks like 134 is the next stop. Mortgages are weaker as well.  As the 10 year sells off, it will be interesting to see if the Fed can hold up MBS.

The Fed left rates unchanged, but noted the recent economic strength and low inflation (since food and energy prices don’t matter). They re-affirmed their intention to maintain exceptionally low interest rates through late 2014. Operation Twist and the MBS re-investment will continue. People hoping for clues to QEIII didn’t get much except for a bland statement that the Fed will continue to review its securities holdings and adjust as necessary.

After the close yesterday, the Fed released the results of its stress-tests of the banking system. Citi, Suntrust, Ally and Metlife flunked.  The stress test was actually pretty tough – unemployment at 13%, a 50% crash in the stock market, and another 21% drop in house prices. 15 of the 19 banks examined would maintain capital ratios above regulatory minimums in that scenario. The detailed methodology is here.

This editorial from the NYT regarding Goldman reminds me of the way Michael Lewis described Salomon Brothers in Liar’s Poker.

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