Bring back the Bulls Pamplona!

Got to give them credit they keep running, why? Not sure, running scared that they may be missing something. Similar to the lemming’s that partakes in month end capital markets trading. Good reason’s why European bourses temporarily flashed green this morning. The unemployment rate ticked down (+9.4% vs. 9.7% expected). Who is going to convince the Irish and Spanish investors who rates are to advance a couple of % in the next 6-months! UK consumer confidence is stable. Confidence is the key to us beating this recession. Let’s hope that this morning’s advanced US GDP numbers do not spoil the weekend!

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 ‘subdued’ illiquid O/N session.

The seasonal distortions that we have witnessed over the last 3-weeks in jobless claims may now be over. This week’s initial jobless claims seemed to have returned to more realistic levels (+584k vs. +559k) as it’s assumed that the auto ‘kink’ have ‘worked themselves out’. However, Analysts will tell you that continuing claims are probably still underestimating, as the report is lagged a week (+6.197m vs. +6.251m). It’s probably best to look to next weeks numbers to fully understand the current trend for jobless and continuing claims. We should still expect to see elevated levels for both, solidifying that +10% US unemployment level sooner rather than later. A significant portion of the declines in claims for this month can be attributed to more workers rolling off the regular benefit program and into the extended program which provides an additional 20-week of income support. It’s worth noting that those collecting benefits from the regular and extended programs amount to almost +9.3m and clearly reflect the inability of those unemployed to find new work.

The USD$ currently is lower against the EUR +0.35%, GBP +0.41%, CHF +0.14% and higher against JPY -0.16%. The commodity currencies are stronger this morning, CAD +0.31% and AUD +0.39%. Same story board, just a different day. The appreciation in the CAD continues to limit the rise in Canadian consumer prices. Prices advanced last month for the 1st time in 3-months (+0.7% vs. -1.3%) on the back of a sharp increase in commodity prices. Analysts that expect the loonie to continue its rise for the remainder of this year should expect producer prices to remain well anchored and keep inflation down, thus supporting BOC Carney’s view that rates will remain low well into next year. Digging deeper, one notices that raw materials prices surged over +6% due to the strong increase in petroleum prices. Will this eventually put pressure on domestic output prices? In this current environment any significant price hikes would likely reduce discretionary spending and the end result would see prices capped. This on-again, off-again recession is bringing risk takers back into the market. By default, higher yielding assets like the loonie do much better. The lines are blurry because of month end portfolio requirements; hence the volatile swings in an illiquid market. The strength of the currency continues to get ahead of fundamentals. This morning we have GDP numbers, so far investors have had little data to feed off this week. If the currency manages a weekly close above the 1.0925 level, it will want us to explore the 1.1200 handle again, I fear LHS month end pressure will preserver as we go into the Canadian long weekend.

The AUD is set for a 6th monthly gain vs. the greenback, the longest winning streak in 5-years. Investors are speculating that this morning’s advanced GDP will show that the contraction in the US economy slowed last quarter. Fundamental data out of Australia continues to impress and traders are now beginning to bet that Governor Stevens will be the 1st CBanker to hike rates (0.8274).

Crude is lower in the O/N session ($66.58 down -36c). Bring back the Bulls! Crude oil rose for the 1st-day in 3 as better than expected corporate earnings is restoring confidence in the prospect of an economic rebound, temporarily at least. Earlier this week crude prices plummeted on the back of a staggering surprise in the weekly EIA inventory numbers. They reported a whopping +5.1m barrel increase to +347.2m, w/w. The market had anticipated an average decline of -1.2m barrels. Refiners cut operations by -1.2% to +84.6%, relative to capacity, while imports climbed +8.9% to +10m barrels a day last week (the highest since Jan.). The commodity market has been drawing most of its ‘new found resurgence’ from a weaker greenback and rallying equity markets. Healthy demand destruction remains. Earlier this week, crude managed to print its highest level in over a month and looked set to break through the $70 resistance level. Commodities had been advancing on future expectations and not on fundamentals. The CFTC has started its debate on speculation, which they believe has contributed to the ‘asset bubble’. Some dealers think that any attempts to curb speculation may be ‘disruptive’ to markets, and eventually push markets lower. By day’s end demand destruction cannot and will not support higher fuel prices! Gold prices, similar story as crude, the yellow metal advanced as the buck dropped and equities climbed, thus boosting the appeal of the commodity ($937).

The Nikkei closed at 10,356 up +191. The DAX index in Europe was at 5,346 down -13; the FTSE (UK) currently is 4,625 down -6. The early call for the open of key US indices is higher. The 10-year Treasury’s eased 3bp yesterday (3.62%) and is little changed in the O/N session. The plethora of US product this week, a record $150b, earlier managed to push shorter yields higher and in doing so increased borrowing costs for the US government as it pays for its economic rescue package. Unlike the 2 and 5-year auctions, direct demand was much stronger for yesterday’s 7-year offering. The $28b notes were awarded at 3.369%, 3bp through the screens. Indirect bidders accounted for 62.5% double that of both the 2’s and 5’s. With equities grinding higher on the belief that the worst of the recession is over should encourage investors to shy away from the FI asset class on aggressive upticks.

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