Obama Mortgage Plan boosts Stock Markets Increases Risk Appetite

American Stock markets rallied late in the day after news of President Obama’s administration was said to be working on a mortgage payments subsidy program. Homebuilders and Financial Institutions were the most benefited from the news, after an atrocious week after the Bank Rescue plan was met with concerns on Tuesday. Fundamental data has been negative of late in the US but yesterday there were two positive, if not very relevant data points.

The G7 Summit gets under way today in Rome, but the far reaching effects of the crisis have the market waiting for the G20 as the most Industrialized nations cannot contain this global phenomenon.

The US$ is weaker in the O/N trading session. Currently it is lower against 10 of the 16 most actively traded currencies, in a ‘whippy’ trading range.

Forex heatmap

Jobless claims in America dropped slightly last week, but didn’t change enough to move significantly away from a 26 year high. Companies continue to announce layoffs. The Department of Labor said Thursday that 623,000 claims have been filed, less than the previous 631,000 but more than the expected 610,000 expected by analysts. US retail sales increased by 1% in January. Analysts explained the unexpected rise by higher gas prices and deep discounting by retailers in New Year sales. Decembers data was revised from a drop of 2.7% to a 3.0% drop.

The G7 Summit gets under way today in Rome, but the far reaching effects of the crisis have the market waiting for the G20 as the most Industrialized nations cannot contain this global phenomenon.

The US$ currently is lower against the EUR 0.41%, GBP 1.41%, CHF 0.21% and higher against JPY 0.43% The USD strengthened after the flat reception the Bank plan by Tim Geithner received on Tuesday as investors returned to their risk aversion strategies and looked for a safe haven in the USD. Optimism that the Stimulus plan might be approved this Friday has spurred investors to seek refuge in the USD as its government seems to be moving forward with mechanism to improve the economy.

The commodity currencies are lower this morning, CAD 0.65% and AUD 1.23%. President Obama announcement of a mortgage rescue plan renewed investor’s risk appetite and higher yielding currencies benefited. There is speculation that the Governor of the BOC will cut rates again in March 3rd, the current Canadian benchmark rate is 1.00%.

The AUD (0.6581) recovered lost ground after the Australian stimulus plan was passed in the Senate after some last minute negotiating. The package is A$42Billion received 30 votes in favor vs. 28 against. The news boosted the AUD as the package includes cash handouts to millions of Australians with the first payment due in March.

Crude is lower O/N ($34.60 down -180). Doubts that the US Economic Stimulus plan will be successful and rising inventories continue to pressure oil prices. Oil fell to a seven week low after the report from the IEA cut world crude demand by 980,00 barrels to 84.7 million in 2009. Supply rose again (by 4.7 million barrels) to further bring down the price of the black stuff. Oil has retreated sharply from historic highs of $150 a barrel last summer. OPEC members announced a production cut in order to boost the price of crude above its current levels, which they claim are not enough to invest in new supply.

Gold ($943) appreciated after breaking the $900 level, after the metal has been perceived as a safe haven. Gold has decoupled from oil and extends its gains alongside the USD as both are viewed as safe havens for investors.

The Nikkei closed at 7,779 up 74. The DAX index in Europe was at 4,407 down 122; the FTSE (UK) currently is 4,202 down 32. The early call for the open of key US indices is lower. The 10-year Treasury yields fell by 1bp (2.78%). Bond prices have dropped in expectation for the plans to sell an accumulated $67 Billion in three year, 10 year and 30 year notes this week. Fundamental data has been pointing to a decline of the USD, but the mixed feelings the market has about the stimulus plan and the rise of risk aversion strategies have made the Dollar a safe asset.

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