To Bail out or not to bail out, that is the question as GM, Ford and Chrysler wait

While the majority of investors think it’s a bad idea to bail out the Auto sector, they are afraid that not bailing it out could be a costly mistake for the economy. To make matters worse both political parties have dug in their heels on the issue eliminating the possibility of a swift agreement on either direction. There is nothing worse for the market than uncertainty.

Henry Paulson is too busy rewriting his memoirs and past statements but he has indicated that the Auto Industry should not have any of the $700B bailout. Car manufacturer CEOs have pleaded one after the other and it seems BofA chief Ken Lewis sees fewer than three as a magic number. Who shall be eliminated from tonight’s Economic Crisis special?

The US$ is stronger in the O/N trading session. Currently it is higher against 10 of the most actively traded currencies, in a ‘whippy’ trading range.

Forex heatmap

The US$ currently is higher against the EUR -0.10%, CHF -0.32%, and lower against JPY +0.27%. The commodity currencies are weaker this morning, CAD -0.57% and AUD -1.04%.

The loonie declined against its major trading after traders forecast lower oil prices and commodities in as the TSX Index tumbled 1.32%. Dec 9th is BOC last meeting of the year and the Central Bank is expected to cut rates by 50 basis points. Adding to Germany’s Chancellor the Auto Industry is knocking doors all over the world and the Canadian Industry Minister will meet with representatives of the auto makers in Detroit today.

The AUD (0.6431) fell as risk aversion drew investors away as equity markets fell The currency has depreciated 25% since the Central Bank initiated the latest round of rate cuts (5.25%) and traders are pricing a lower benchmark interest rate. Traders will be watching Governor Stevens speech for guidance of the size of the next rate cut.

Crude is weaker O/N ($53.60 down -79c). Oil depreciated after a US government report showed gas prices continue to slide in October. As cold weather hits North America crude is expected to recover some lost ground due to a higher demand of heating oil. OPEC plans to decrease production in an effort to convince the market to stop falling crude prices and has announced a new emergency meeting at the end of the month.

Somali pirates off the coast of Kenya have taken hostage an oil tanker worth $100 million; so far crude prices have not been affected by geopolitical risk. Today’s IEA stockpile report will probably show an increase in inventories and pressure oil prices to even lower levels.

Gold ($736.90) fell after the USD advance against the EUR, reducing the yellow metal’s appeal as an attractive alternative investment.

The Nikkei closed 8,273 down 55. The DAX index in Europe was at 4,533 down -46; the FTSE (UK) currently is 4,145 down -62. The early call for the open of key US indices is lower. The 10-year Treasury yields eased 6bp yesterday (3.46%). Bond prices are higher as equity markets tumble and there are lower expectations of economic growth.

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza