Welcome back Ben Bernanke!

Ben Bernanke getting the nod again from his employer will bring a sign of relief from the markets. A seamless extension is warranted in these ‘not so’ good times. Atlanta’s SunTrust CEO Well’s managed to publicly say what many have been thinking aloud. He believes that ‘the financial industry is a long way from declaring any sort of victory, especially regarding credit issues’. Losses are once again to appear, starting this Q! The knock on effect has taken some of the ‘risk accumulation sting out of the tail’. Most disturbing, in the O/N session, the Shanghai Composite index fell as much as -5.7% after Premier Jiabao warned that authorities cannot be ‘blindly’ optimistic about the economy. The rally we have seen since the middle of July until now is definitely extending the fundamentals beyond ‘justified’ levels, particularly so in Asia. We are in for a bumpy ride me thinks!

The US$ is stronger in the O/N trading session. Currently it is higher against 14 of the 16 most actively traded currencies in a ‘whippy’ trading range.

With no data in the US to provide guidance, markets relied on last week’s bullish sentiment to spill over and dominate yesterday’s session. Evidence of growth is starting to seep through the global cracks of recession. Prudently, policy makes remain overtly cautious when describing the bumpy road ahead. Analysts, who did not even predict this global meltdown, are becoming fixated on what the shape of the recovery graph will look like (V, U or W-what about a W+V? or even an L!). One does get the feeling that there is an upbeat or euphoric premium handsomely built in to all asset classes. It’s a premium price that seems to be ahead of fundamentals. Roubini states that there are risks associated with exit strategies from the massive monetary and fiscal easing. Policy makers have a tougher job over time to execute their retreat. It’s the three evils of when, how, and how much that will need to be dealt with kid gloves!

The USD$ currently is higher against the EUR -0.16%, GBP -0.35%, CHF -0.09% and JPY -0.21%. The commodity currencies are weaker this morning, CAD -0.14% and AUD -0.14%. What was not to like about Canada’s surprising Retail Sales data yesterday. The headline print (+1.0% vs. +0.0%) encouraged investors to buy into Goldman’s lemming trade recommendation from last week and strap on more CAD. Analysts caution investors that the headline good-news is overstated for 3-reasons. Firstly, higher prices helped to push the headline print up faster than expected. Secondly, ex-autos, food and gas sales were unchanged in June on a nominal basis. And finally, it’s well documented that some of the fiscal incentives (Home renovation Tax credit) has done little to boost building, in fact it declined -0.6% on the month and is down -3.4%, y/y. Did they ever consider that the incentive may not be large enough to warrant consumers to use it! Digging deeper, it was obvious that higher gas prices would contribute to gains in gas station sales (+4.7%, m/m). Another boost to the headline was that food prices also advanced +1% for the month. The sales data dragged the loonie higher for a 5th-consecutive day (+3.1% and the longest winning streak this month). Speculators continue to bet that Canada is the true first G7 economy to exit the recession. The BOC will not be happy, last month they predicted 4th Q growth, but the value of the currency was going to affect the ‘pace’ of it. If commodities remain elevated we are going to have a worrying BOC.

The AUD is once again under pressure snapping a 5-day’s worth of gains in the O/N session, after declines in Asian bourses has discouraged demand for higher-yielding assets. Just like most positive data of late, analysts believe that investors have ‘over priced a lot of the good news’ and that ‘speculative positioning is at an extreme’ (0.8381).

Crude is lower in the O/N session ($73.84 down -53c). Crude prices yesterday managed to better Friday’s 10-month high print as global equities continued their advance as investors speculated that the worst of the recession is over. Stronger than expected US housing data last week along with Bernanke’s comments are providing support for commodities on pull-backs. It’s alarming that we have shifted away from the demand destruction theme! Of course a weaker greenback is boosting the appeal of commodities as an alternative investment. Technical analysts believe that $75-76 will provide strong resistance in the short term despite triggering some technical buying. Last weeks surprisingly poor inventory reports from both the API and EIA bodies will again come under close scrutiny today and tomorrow to see if inventory levels warrant these elevated prices. The most coveted indicator, the EIA, showed that US inventories declined the most in more than a year as imports plummeted and refineries increased their operating rates. Currently, refineries are operating at 84% of capacity (up +0.5% from the week before). Inventories declined -8.4m barrels, w/w. The most eye-catching detail was that imports fell -15% to +8.53m barrels a day (the biggest drop and lowest rate in 11-months since the last hurricane season). We are now officially over the hump of the US driving season and just about to enter historically a weak demand month of Sept. Despite probably seeing the worst of the recession, global growth will remain very subdued. But remember it’s also the hurricane season! Gold prices were little changed yesterday, one trading session after advancing the most in 4-weeks when the buck slid and increased the ‘yellow metal’s’ appeal as an alternative investment. There are some niggling doubts that USD will remain under such pressure in the short term ($948).

The Nikkei closed at 10,497 down -83. The DAX index in Europe was at 5,499 down -21; the FTSE (UK) currently is 4,877 down -18. The early call for the open of key US indices is higher. The 10-year bonds eased 6bp yesterday (3.49%) and are little changed in the O/N session. US yields managed to print their highest level, albeit temporarily, in over a week yesterday morning as global equities rose a 5th-straight day, and by default encouraging investors to shy away from the relative safety of government debt. By the end of the afternoon session and after the $6b-US government buy-back, FI product was found wanting again on the back of US equities retreating on concerns of future bank commercial losses. Supply will this week dictate the shape of the US curve. Last week, the Treasury announced a total of +$109b of 2’s (+42b-Today), 5’s (+39b-Tomorrow) and 7’s (+28b-Thursday) for this weeks record funding requirements.

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