U.S. Market Update

Dow -90 S&P -7.7 NASDAQ -3.4

With all eyes focused on the February jobs report, the Federal Reserve grabbed a large chunk of the spotlight when they raised the TAF outstanding to $100B from $60B before the release. Rumors emanating out of the overnight session that the Fed was likely to announce an intermeeting cut in the wake of a weak jobs number helped equity and bond futures firm. The April Fed fund futures contract was fully pricing in 75 bp cut and offering better than 30% odds of an additional 25 bp worth of cuts as traders arrived at their desks in the US morning. The TAF announcement displaced the inter-meeting cut rumor but confirmed sentiments that the jobs data would be poor for the second month in a row. When it was announced that Feb non-farm payrolls contracted by 63K equity futures plunged along with Treasury yields. The two-year yield moved below 1.50% ahead of the NY open but as equity markets pared losses after the open the intense flight to quality dissipated. Financial stocks bounced hard right from the open led by the investment banks, boosting all three of the major indices into the green a little more than one hour into the session. Equity markets have since come nearly half way back to the morning's opening levels and it looks as if it will be a struggle to hold any gains. Technology is the real bright spot as good earnings from NSM +8% have aided the semis. Treasury futures remain higher but off of their best levels. The two-year is seeing more selling than the long end with the benchmark spread contracting back below 200 basis points. Fed fund futures contracts are still firmer but off of their best levels with April not quite fully pricing in 75bp and Aug pricing in better than 90% odds of a 1.75% Fed funds rate. Commodities initially sold off on growth concerns after the jobs number, but again the profit taking as been minimal despite a firmer dollar. April crude has made another all-time high above $106 while gold holds $975.

The USD staged a formidable rebound in what traders termed a "technical" bounce from all-time lows against the Euro and Swiss and eight-year lows against the Japanese yen, this after an expected weak Feb US employment report. Renewed rumors of an emergency rate cut circulated throughout the European session and credit market jitters continued to weigh upon overall USD sentiment. The iTraxx Crossover Index highlighted financial market stress as it traded at 651bps for fresh all time highs overnight. FX dealers braced for the worst ahead of the payroll release after the Fed announced it would increase its outstanding Term Auction Facilities (TAF) amount to $100B from $60B, and added that it was "In close consultation" with foreign central banks. The Fed will continue TAF auctions for "at least six months" as well. US Payroll data was weaker then consensus expectations, but the "better" unemployment rate of 4.8% v 5.0%e helped the dollar to cap its session losses. The EUR/USD all-time high currently stands at 1.5465 and USD/CHF lifetime lows sit at 1.0132. Fed staff noted that the aim of TAF is to keep funds rate around target and the announcement was not related to the Feb employment report, but the Fed recognized that market conditions deteriorated in recent days. Fed's Mishkin noted that currency moves are a problem only when they lead to reallocation of resources. CAD was off its best levels following strong Canadian employment data. Feb employment rose by 43.3K, well above the 3.0K estimates. Dealers note that JPY related flows aided by bring the commodity related currencies off their best levels in the session. European equities rebounded from session lows as traders noted that the Fed expansion of acceptable collateral for its terms repos were well received.

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