Archived IMT (2009.04.07)

Risk aversion trades test the threshold in the various markets, with yen strength dragging USD below 100, USD strength, dragging EUR, GBP and AUD below 1.33, 1.46 and 0.71 cents respectively, while oil tests $50 per barrel. The RBA decision to cut rates by 25-bps was well received by the Aussie as the RBA allowed for the possibility for rates to bottom at 3.00%. Media pundits are blaming the sell-off in global stocks on various reports on toxic assets from the IMF and private banking analysts. The IMF report stated toxic assets in balance sheets worldwide could reach $4 trillion. This is over one year after the IMF was shunned by US policy makers when it estimated that total banking losses could reach $1.3 trillion. Losses from writedowns have now approached this level, and neither the latest equity rebound nor policy easing has worked in stabilizing these values. I still expect the S&P500 to fail in breaching above the 860-870 level and Dow to rise past the 8,300-8400 level. Base case remains for the March lows to be retested in June-July.