Dollar Index And The Financial Sector

Dollar Index: It was fascinating to see the dollar's remarkable run to the upside continue from last week as traders come to the realization that a global slowdown is occurring and that a number of economies are now threatened by the specter of recession. The market is very focused on the dollar's inverse correlation to oil and it does seem that the bears have control of that market now, despite the supply risk from the escalating Russian/Georgian conflict. News that China imported about 7% less oil in July, the least amount (3.25 million barrels per day) since last December, is sure to add to the "demand destruction" theory which has apparently taken hold. Still, it's hard to imagine traders not growing concerned about supplies if it does appear that Russia's intent is really to overthrow the Georgian government. On the day, the index gained 0.42 (0.55%) to 76.260, the highest level since February 13.

The Financial Sector: Charlie Gasparino from CNBC reported that Lehman Brothers (LEH) CEO Richard Fuld is looking to sell all of the firm's holdings in troubled mortgage backed securities, in a similar move to what John Thain did recently at Merrill Lynch. Lehman's shares had fallen 5.37% by 12:30 EDT but finished trading down 0.97%. Mr. Gasparino also reported Lehman may be looking to sell all or part of its holdings in money manager Nueberger/Berman. Analyst Paul Miller of Friedman Billings Ramsey said credit losses at Fannie Mae (FNM) will exceed the company's expectations and force it to raise between $5 billion and $10 billion in order to strengthen its balance sheet against future losses and supply liquidity to the mortgage market. Miller reduced his price target on the shares to $6 from $11 and maintained his "underperform" rating. Fannie's shares closed 7.18% lower. The information didn't help Freddie Mac (FRE) either; its shares lost 5.08% on the day. Standard & Poor's Ratings Services affirmed the stable AAA ratings on the senior debt of Fannie and Freddie, citing the "strong explicit and implicit U.S. government support these securities hold in the marketplace." The XLF closed on 22.31 after gaining 0.37 point (1.96%) on relatively light volume of 161,300,576, 6.99% below the daily average of 173,429,000. Volume in the XLF has increased nearly 70% on a daily basis since the beginning of July.

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