Thursday March 24

Stocks end the shortened week mixed as the trends that contributed to the market turnaround this year dissipated. The S&P500 fell fractionally to 2,036 and the Dow Jones rose less than 0.1% to 17,515. the S&P500 finished 0.7% lower on the week and the Dow lost 0.5%. The VIX remains subdued finishing the week at just 14.84. This week the US dollar rose as investors digested relatively hawkish comments made by FOMC officials and oil prices fell, both of which caused equities to drift downwards. Before this week equities had gained for five consecutive weeks. Brent prices fell 0.1% to $40.44 and WTI lost 0.5% to $39.58. The dollar index gained 0.1% continuing its rally for the week. The two year yield ticked upwards rising 2 basis points to 0.87%. The ten year yield rose 3 basis points to 1.90%. Each of these yields was up 3 basis points on the week. Gold prices fell as the dollar strengthened.

A bond offering backed by a pool of personal loans made through online lender Prosper Marketplace receives low demand from investors. Online companies that connect creditors with borrowers online have faced these problems recently as investors focus on the underwriting standards and riskiness of loans that are made online. This is related to trends that have been seen in credit markets given the risk off atmosphere and the widening of spreads. Companies that connect lenders with borrowers online have grown significantly over the last few years, however problems relating to underwriting standards remain to be a big hurdle. As a result share prices of publicly traded online lenders such as Lending Club and On Deck have dropped significantly since their IPOs. The loans that are made are securitized and sold to investors. One tranche of Prosper’s issuance sold at a yield of 12.5% which is significantly higher than the 7.3% a similar Prosper issuance yielded at the end of last year. Hedge funds which in the past have been buyers of such debt have backed off in recent months given the turmoil in credit markets. On a wider economic scale investor demand for such products could be seen as a gauge of investor expectation about the financial health of US consumers.

The dollar enjoyed a broad rally this week as higher rates in the US came back into focus. The US dollar index rose 1.6% over the last six days as investors begin to turn their attention towards the March non-farm payrolls report next Friday. The most recent FOMC statement indicated that the Fed is closely watching economic data to determine how global developments are affecting the US economy. If economic data continues to come in strong as it has over the last several months, that would be conducive to higher interest rates and therefore a stronger dollar. This week the dollar rose 1.3% against the Japanese yen to Y113.01. The dollar rose against the euro 0.8% to $1.116. The British pound lost 1.9% this week as investors continue to price in a potential Brexit. The dollar gained 2.3%, 2.1%, and 1.9% against the rouble, the rand, and the real respectively as emerging market currencies also eased back from recent gains. Additionally the PBoC weakened the renminbi this week falling 0.9% against the dollar to Rmb6.5223.

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Thursday March 24

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