The major U.S. indices lagged international markets, with the Dow Jones Industrial Index falling by 1.2% and the S&P 500 Index losing 1.1% during the week. However, the Nasdaq Composite Index (+0.1%) and the Russell 2000 Index (+0.3%) managed to eke out small gains.

Banks and broker/dealers were the worst-performing areas in the U.S., shedding 8.4% and 7.1% respectively for the week as sharp earnings estimate cuts expedited profit-taking after the strong gains of the previous week. Retailers (-4.1%) also took a big hit, with a warning by J.C. Penney (JCP) souring the outlook.

On the positive side in the U.S., oil services (+6.9%), materials (+6.1%) and gold and silver stocks (+4.8%) provided some joy.

Click here for a scorecard for a number of global stock markets, indicating the index movements since each of the respective markets’ highs in US dollar, euro and local currency terms.

Fixed-interest Instruments

The past week saw the yield on the 91-day Treasury Bill creeping up from 0.54% to 1.32%, showing more confidence as investors moved out of T-bills into higher-yielding securities.

On the mortgage rate front, the 30-year and 15-year US fixed rates were 13 basis points (5.85%) and 21 basis points (5.40%) higher respectively.

Government bonds kicked up over the week as safe-haven buying receded. The yield on the 10-year U.S. Treasury Note increased by 13 basis points to 3.47% (aided by the Treasury selling $136 billion in new stock), the 10-year German Bund rose by 19 basis points to 3.94% and the 10-year UK Gilt edged up 13 basis points to 4.42%.

Click here for my recent post, "U.S. Long Bonds in Injury Time."

Currencies

The US dollar resumed its downward trend last week as the weakening economic data created the expectation of a further 50 basis point interest rate cut at the FOMC’s meeting next month. The euro, however, rallied as Mr Jean-Claude Trichet, chief of the European Central Bank, rejected calls for an interest rate cut after a surprise rise in German business confidence this month, insisting that fighting inflation was his priority.

The U.S. dollar lost 2.1% against the euro over the week and also weakened against the Swiss Franc (-1.1%), the British pound (-0.4%), the Australian dollar (-1.7%) and the New Zealand dollar (-0.8%). On the other hand, the Japanese yen gave up 0.5% against the U.S. dollar as risk aversion took a back seat, putting the low-yielding currency under pressure.

Iceland became the first deficit state succumbing to investor flight, forcing the central bank to raise interest rates to 15% this week in an emergency move to halt the collapse of the krona. The Icelandic currency lost a further 2.7% against the euro, having fallen 18% since mid-March.

Commodities

A combination of U.S. dollar weakness and supply concerns triggered a rebound in commodities from the previous week’s losses, resulting in the Dow Jones-AIG Commodity Index gaining 3.9% for the week.

Recoveries were staged across the spectrum of commodities: crude oil (+3.7%) gold (+1.8%), platinum (+8.8%), silver (+6.5%), copper (+7.2%), nickel (+6.6%), corn (+8.6%) and soya beans (+4.4%).

West Texas Intermediate oil jumped to $108.22 a barrel on Thursday after an attack on Thursday on the Basra export terminal in Iraq, but retreated to $105.62 a barrel by the close of the week.

Precious metals were unable to regain their record highs and David Fuller, author of Fullermoney, cautioned: “… despite the recent bounces, it would be premature to assume that we have seen the reaction lows, for what on past evidence is a multi-month shakeout within the long-term bull markets for precious metals.”

Monday’s release of the Prospective Plantings report from the U.S. Department of Agriculture is eagerly awaited as soft commodities have been the major recipients of commodity investments over the past few months.

Rice prices jumped by 30% to an all-time high on Thursday, raising fears of fresh outbreaks of social unrest across Asia, where the grain is a staple food for more than 2.5 billion people. Global rice stocks are at their lowest since 1976.

“I maintain that most agricultural commodities are currently in medium-term corrections and will be joined in this process by those that are still accelerating, such as rough rice. Consequently, investors should expect a period of underperformance by agricultural commodities and shares, which have run ahead of their current potential,” said Fuller.

Finally, one editorial cartoon:

Source: Lisa Benson, Slate, March 26, 2008.

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