‘Bad Bank’ will pay ‘Cash for Trash’…..we all end up paying in the end!

What did the World Economic Forum accomplish? Have we learned anything? Bitterness and anger was the main ingredient served. It was all thrown in the direction of the ‘greedy’ bankers and at the US and its capitalist system. Are regulators to blame? Or has it just been the greed of bankers robbing the wealth of others. Where do we go from here? Perhaps protectionism is around the corner!

The US$ is stronger in the O/N trading session. Currently it is higher against 13 of the 16 most actively traded currencies, in another ‘whippy’ trading range.

Risk aversion trading strategies continue to dominate. Global equities are finding very little traction as fundamental data points to a deeper global recession. By week’s end we will have witnessed the speed and depth in the US, all in the form of last months NFP numbers. With all the revisions and layoffs, are we to see the psychological -1m mark? The EUR remains under threat, not just from a fundamental perspective, but psychologically, from a culture concern. Many European countries are internally ‘shooting themselves in the foot’, Hungry and Ireland for example; they are currently on course for another Icelandic experience and this technically is the EUR’s first challenge since its inception 10-years ago. Will it survive? The doomsayers believe that due to the diverse cultures, economic and financial losses within certain countries could bully the currency into final submission. That scenario is a long way off.

The US$ currently is higher against the EUR -0.12%, GBP -1.26%, CHF -0.23% and lower against JPY +1.23%. The commodity currencies are weaker this morning, CAD -0.62% and AUD -0.73%. Risk aversion trading strategies continues to push the loonie lower as investors seek the safer heaven asset class of the greenback rather than higher yielding commodity currencies. Pessimism expressed by lower equity markets has convinced investors once again to enter risk aversion trades. Global economic data, day-over-day is providing another nail for the coffin! In this current market mood, traders are content in buying USD on pull backs.

Aussi manufacturing data contracted for an 8th consecutive time last month as companies received fewer orders and fired workers. RBA Governor Stevens is expected to slash borrowing costs tomorrow to its lowest level in over 40-years (4.25%). Risk aversion strategies remains the order of the day, thus far the AUD has depreciated 8% vs. the greenback this year (0.6317).

Crude is lower O/N ($41.19 down -19c). The unexpected US GDP data on Friday gave oil prices a lift. With the US economy contracting less than expected in the final Q of 2008 gave the market optimism that energy demand may strengthen. Oil is still down 72% from the high printed in July last year. Labor issues with steel workers and Royal Dutch Shell combined with seasonal refinery maintenance has also contributed to this bid tone of late. The IEA and OPEC continue to foresee a drop in global demand this year. Despite all this, last weeks EIA report did not surprise in respect to crude inventories, they have now risen for the 16th time in 18-weeks. Weekly inventories jumped +6.22m barrels to +338.9m over the period vs. an expected climb of +2.9m. But, surprisingly gas stocks fell -121k barrels to +219.9m last week vs. an expected climb of +2m barrels. But, bearish economic data continues to highlight the depth of the global recession. Last weeks US housing reports provided strong evidence that the on-going recession in the biggest energy consuming country is only deepening and this week we will finish with the mighty NFP! The black-stuff continues to find it difficult to maintain any bullish momentum, all this despite investors speculating that global stockpiles would decline when OPEC fully implements its promised production cuts. It is expected that OPEC will curb supplies by -5.4% to +26.15m barrels a day. With global equities remaining under pressure, gold continues to find aggressive support on pullbacks as investors seek an alternative investment, this morning pull back was some profit booking after last week’s rally ($912).

The Nikkei closed 7,873 down -120. The DAX index in Europe was at 4,338 down -90; the FTSE (UK) currently is 4,149 down -41. The early call for the open of key US indices is lower. The 10-year Treasury yields backed up 1bp ob Friday (2.84%) and are little changed in the O/N session. The long end of the US yield curve remains better bid on pull backs as traders anticipate that the Fed will eventually be in a position wanting to buy longer dated securities as a part of their long term stimulus plan. But, medium term debt continues to struggle after the 2 and 5-year note sale last week coupled with the US House of Representatives giving the green light to President Obama’s economic stimulus plan.

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