Are we experiencing another bear market pre-Christmas rally in both equities and FX-land? Daily reminders from headline tickers indicate the further slashing of full time employment. The optimist believes all the Ã¢â‚¬Ëœbad newsÃ¢â‚¬â„¢ has been priced in. We are obviously trading the future expectations and not the current situation. LetÃ¢â‚¬â„¢s hope its true!
The US$ is stronger in the O/N trading session. Currently it is higher against 12 of the 16 most actively traded currencies, in another Ã¢â‚¬ËœwhippyÃ¢â‚¬â„¢ trading range.
The Obama factor has renewed global optimism, temporarily at least. The Bush administration has thrown Ã¢â‚¬ËœoneÃ¢â‚¬â„¢ life preserver to save Ã¢â‚¬ËœthreeÃ¢â‚¬â„¢. The auto industry will have until March to Ã¢â‚¬ËœburnÃ¢â‚¬â„¢ taxpayerÃ¢â‚¬â„¢s cash once again. But, this time we may get another apology! Headline news of company layoff and future earningÃ¢â‚¬â„¢s problems continue to dominate. This morning, surprisingly, the German investor confidence indicator rose despite the largest European economy slipping into a technical recession (-45.2 from -53.5m/m). This data has bucked the recent trend. LetÃ¢â‚¬â„¢s hope we experience more of this. The greenback looks a safer bet to own on pull backs over this holiday season. One should expect both heightened volatile and excessive spreads do dominate until month end.
The US$ currently is higher against the EUR -0.67%, GBP -0.92%, CHF -0.58% and lower against JPY +0.64%. The commodity currencies are weaker this morning, CAD -0.23% and AUD -2.23%. Despite an aggressive rally in commodities, the loonie remains vulnerable after last weekÃ¢â‚¬â„¢s horrible employment number (a loss of Ã¢â‚¬â€œ71k vs. -15k) combined with the political fiasco being played out in Ottawa. Investors now believe that the currency has a reasonable chance to print new Ã¢â‚¬ËœyearlyÃ¢â‚¬â„¢ lows vs. its southern neighbor. The political and economic dynamics will push the currency towards 1.3300 in the short term. The unsettling political debacle in Ottawa has forced PM Harper to suspend Parliament to stave off a no confidence vote before he introduces the budget to the house in late Jan. ItÃ¢â‚¬â„¢s unbelievable that in the worst global economic crisis in our lifetime, the Canadian Government effectively is in on hiatus for two months. ItÃ¢â‚¬â„¢s only a matter of time before the loonie again makes a major assault on the yearly highs. The 6-month fall off in oil prices has managed to have a negative effect on the sentiment of the Canadian dollar. Crude accounts for approximately 10% of all of CanadaÃ¢â‚¬â„¢s export revenues. With the recent deep cuts by CBankers, futures traders are pricing in a 75bp by Governor Carney this morning. 75bp may be a tad rich for the market, 50bp will probably be the winner, but, with the fundamental and political situation the way that it is, Governor Carney cannot rule out a deeper cut.
The AUD dollar gave up some of this weeks early gainÃ¢â‚¬â„¢s after the local bourses retreated and consumer confidence data down under recorded record lows. Traders were happy to book profits ahead of their employment numbers later this week. The currency has remained better bid on pull backs as investors continue to speculate that Cbank interest rate cuts around the world will bolster economic growth. Similar to other Cbanks, the RBA lowered interest rates by 1% to 4.25%, the 4th cut since Sept (0.6636).
Crude is higher O/N ($43.61 down -10c). Crude rallied from last weeks dismal close after President elect Obama promised the Ã¢â‚¬ËœbiggestÃ¢â‚¬â„¢ US public works program in over 50-years to kick start their ailing economy. Investors are wagering bets that spending on new infrastructures would be a boom for commodities. Combined with the Ã¢â‚¬ËœbasicÃ¢â‚¬â„¢ agreement with the auto industry will for sure put a temporary floor on the black-stuff prices, which lost close to 25% of its value over the last 10-trading days. North American payroll numbers last Friday was just another nail in the coffin for short term optimism. Since the record highs achieved at the beginning of the summer crude has managed to decline nearly 72% and technically there was nothing stopping prices from falling much further in the short term, until ObamaÃ¢â‚¬â„¢s future stimulus package was disclosed this past weekend. LibyaÃ¢â‚¬â„¢s top oil official said yesterday that OPEC should make a Ã¢â‚¬ËœsubstantialÃ¢â‚¬â„¢ output cut at its meeting in Algeria next week. Already the Saudi Arabian Oil Co. (worlds largest) announced that they would reduce crude oil supplies to Japan in Jan. Last week the black-stuff hit it lowest levels in 4-years as traders bet that a deepening recession in Europe, Japan and the US would erode future consumption, technically one should expect prices to firm further as we approach next weekÃ¢â‚¬â„¢s OPEC meeting. Last week we witnessed the biggest one week declines since Sept. Consumption averaged +19.6m barrels a day, thatÃ¢â‚¬â„¢s up +0.6% from the week before, but down -5.7%, y/y. OPEC wants and needs prices between $70 and $80 a barrel, a desired level at which one can invest. Gold prices have rallied as the greenback has pared many of last weekÃ¢â‚¬â„¢s gains and increased the appeal of the Ã¢â‚¬Ëœyellow metalÃ¢â‚¬â„¢ as an alternative investment ($770).
The Nikkei closed 8,395 up +67. The DAX index in Europe was at 4,719 up +3; the FTSE (UK) currently is 4,335 up +35. The early call for the open of key US indices is higher. The 10-year Treasury yields backed up 3bp yesterday (2.75%) and are little changed in the O/N session. Treasury prices remain under pressure as global indices temporally found some traction. The US treasury also announced a larger than anticipated auction amounts this week ($44b of 3Ã¢â‚¬â„¢s and 10Ã¢â‚¬â„¢s). With a larger supply, traders will want to cheapen up the curve. The curve once again has flattened to record lows (currently 2-10Ã¢â‚¬â„¢s are 178bp). Traders are raising their bets that the Fed will ease by 75bp on Dec 16th. Yields have remained range bound after printing Ã¢â‚¬Ëœnew record lowsÃ¢â‚¬â„¢ last week as investors continue to be better buyers on pull backs.
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