G20 meeting ends without any concrete answers as Japan enters recession.

Risk aversion comes to the forefront again and more than $1 trillion dollars is expected to exit emerging markets and has strengthened the USD as the American currency is seen as a safe haven from the current economic instability. This has caused an appreciation of the currency against emerging markets, but a decline against most of the majors.

Over the weekend the G20 leaders all left after a series of talks but not much to show for their efforts. A long term working programme was agreed, but as more world economies enter recessionary cycles, (Japan announced yesterday that its entering its first recession in 7 years) more is needed. The biggest compromise was to avoid any barriers to trade for the next 12 months.

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.

Negative economic data releases did not hold back the USD last week. US retail sales fell sharply last month, recording the biggest monthly decline since 1992, which is the year retail sales were first recorded. Consumer confidence rose slightly from 57.6 in October to a 57.9 reading this month. The debate regarding the Auto Industry bailout heated up over the weekend with Republican Senators openly opposing it, and Democrat Pelosi pushing the package forward. President Elect Barack Obama said in an interview that the government needs to assist the US Auto industry.

The US$ currently is lower against the EUR +0.53%, GBP +1.22%, and higher against CHF -0.33% against JPY -0.35%. The commodity currencies are mixed this morning, CAD -0.74% and AUD +0.70%.
The loonie declined against its major trading partners on Friday after traders forecast lower oil prices and commodities in general which contribute a large percentage of Canada’s GDP.

Crude is weaker O/N ($55.97 down -107c). OPEC production cuts have not been enough to convince the market to stop falling prices. Iranian OPEC governor Mohammad Ali Khatibi commented that further cuts in productions are planned but will probably be met with the same indifference. Another kidnapping in Nigeria might push oil prices higher for fears of further supply disruptions.

Gold ($748) bounced back from a loss of more than 1 percent this week. As the USD weakens against the EUR, the yellow metal is seen as an attractive alternative investment.

The Nikkei closed 8,522 up 60.19. The DAX index in Europe was at 4,640 down -69; the FTSE (UK) currently is 4,175 down -57. The early call for the open of key US indices is lower. The 10-year Treasury yields eased 2bp yesterday (3.71%).

Friday, Ben Bernanke, at a conference in Frankfurt, hinted at further rate cuts by the Fed (currently at 1.00%) and increased cooperation between the World’s largest Central Banks.

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