Daily Market Update 21/03/2008

Asia Session
Published: March 20, 2008 11:18 PM

The market took a much needed break in today's Asia session and the pause has given one time to reflect on a week that will go down in history. What began with the Fed saving the financial system by helping JP Morgan buy Bear Stearns ended with a potential inflection point in markets. EUR/USD made all-time highs but has had a good pull back as commodities had one of their worst weeks in history. Equity markets also rallied but interestingly we have not seen a bounce in the CHF and JPY crosses which in the past have been highly correlated with equities.

Is the tide changing for the USD? The less than expected Fed rate cut could be a signal that the Fed is still concerned with inflation. Also lower commodities could further help to dampen inflation, increasing the real US interest rate. From a capital flows perspective, the lower US equity markets combined with the weak USD could provide a compelling value proposition to international investors. Interest rate differentials could also begin to narrow as other countries face slower growth and therefore cut interest rates. Picking bottoms and tops can be dangerous but we could be nearing a turning point.