Peek-A-Boo

As I’m sure with many kids, when my son was 3 he would cover his eyes with his hands and think he disappeared. When he put his hands down, he thought he suddenly reappeared. I make this analogy to the expected altering of the mark to market rules by FASB where with a quick vote, some of a banks troubled assets can turn into Fiona the beauty princess from Fiona the Ogre (from Shrek of course). I understand the need to properly value assets with no markets, I just hope clarity is not sacrificed in the process. Asian stocks roared led again by auto makers after NA sales were better than feared. That strength spilled over into Europe ahead of an expected 50 bps rate cut by the ECB. Helping the UK was a home price index that unexpectedly rose m/o/m. The 30 yr UK Gilt auction did have a bid to cover of 1.59 after last week’s failed 40 yr. Commodities also are rallying as copper prices are at the highest since early Nov.

Initial Jobless Claims totaled 669k, 19k more than expected and up from a revised 357k last week. Continuing Claims continued its march higher, rising to 5.728mm, 138k higher than forecasts and up 161k from last week. This, on the heels of the very weak ADP report yesterday certainly sets us up from a poor Gov’t Payroll figure tomorrow but the market action of late is evidence that participants are looking past this employment data and placing their chips on the ‘worst is over’ belief and the still worsening labor market is a lagging indicator. It’s hopes and wishes for now but we’ll see.

China’s March PMI mfr’g # rose above the magic 50 level for the first time since Sept at 52.4 and it’s at the highest since May ’08. This is in contrast to the CLSA mfr’g index that China released yesterday that fell to 44.8 from 45.1. I’m not sure of the difference in the two surveys.

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The ECB unexpectedly cut interest rates by only 25 bps to 1.25% vs an expected move to 1% and they cut their deposit rate to .25% from .5%, keeping the 100 bps spread between the two that has been seen. We’ll hear from Trichet at 8:30am to see why he didn’t cut 50 bps but we can imply that the ECB fully understands that easy money again won’t cure a hangover from a period of easy money. And its easier to reverse the current accommodative policy if you don’t go down into the abyss of ZIRP that Japan has been stuck in for almost 10 years. Also, with deposit rates at only .25%, banks have almost NO incentive of keeping reserves parked at the ECB and are thus encouraged to lend it out to the private sector.