Financials Weigh on Equities, but Dollar Remains Soft

Financials are the weakest sector in US equities today, losing a little more than 2.6%. In addition to simple profit-taking, some contacts are playing up the FASB board meeting Thursday. One of the issues reportedly on the agenda is to expand mark-to-market accounting requirements to a broader array of bank assets, including loans intended to be held to maturity. American Banker reports that the proposals may be formalized this week. The American Banker report that the key issues are when to apply mark-to-market and the current proposal seeks to increase its usage. The eminently practical issue of how to value a broader range of bank assets on a mark-to-market basis remains unresolved. Nevertheless, some observers are concerned that the FASB proposal could lead to a new round of write downs of bank assets.

The US 3-year note auction was well received. Strong bid-to-cover (2.89 vs 2.62 last month). The indirect bid took down 62.5% vs 54 % last month, which is the strongest of the year. Despite the healthy auction, the debt market faces more supply of the next two days and did not seem to react much to the results.

US equities are broadly lower. In the recent past, weaker shares should underpin the dollar, but in recent days that pattern seems to have weakened, or so it would appear. The yen is well bid today, the strongest of the majors, gaining more than 1% against the dollar, euro and sterling. Before the weekend, on the jobs data, the yen suffered mightily as stocks rallied (and the dollar posted dramatic gains). So while the dollar's recent relationship with stock prices seems to have weakened lately, the yen's performance warns that there may still be something to it.