USD and Wall Street recover before the G20 leaders meeting in Washington

The Dow rebounded this Thursday afternoon after three days of losses and nearly reaching yearly lows. The market reacted after 1pm and started a rally that saw the index swing by close to 900 points to finish at 8,835. The return of investor risk apetite spread to other stock markets as Tokyo closed up a t8,462 up 223 points.

Japan is setting the stage before the G20 meeting by offering up to $100 billion for an IMF bailout fund. Friday marks the beginning of the Group of 20 leaders meeting in Washington. The biggest leader not present is President Elect Barrack Obama which could limit the impact of the resolutions if any result from this summit.

The G-20 includes the U.S., Argentina, Australia, Brazil, Britain, Canada, China, France, Germany, India, Indonesia, Italy, Japan, Mexico, Russia, Saudi Arabia, South Africa, South Korea and Turkey.

The US$ is stronger in the O/N trading session. Currently it is higher against 11 of the 16 most actively traded currencies, in a ‘whippy’ trading range.

Labor Department reported the number of newly laid-off individuals seeking unemployment benefits jumped last week to the highest level since right after the 2001 (516k). Testifying before a Congressional committee George Soros backed the idea of higher regulation for the Hedge Fund Industry, but warned about “going overboard”. Economic data in the Eurozone did not bring any good news as GDP shrank for third consecutive time and now its officially in a Recession. Trichet and the ECB are expected to cut at least 50bps in their next meeting on December 4.

The US$ currently is higher against the EUR -0.68%, GBP -0.22%, CHF -0.27% and lower against JPY 0.64%. The commodity currencies are weaker this morning, CAD -0.49% and AUD -1.89%. The loonie received a boost from the Stock Market gains that temporarily boosted commodities. Global recession fears begin to turn to realities and that reduced the appeal of commodities and the currencies based on them. Canada’s crude exports are 10% of its revenues.

Despite some positive economic data of late, the pressure remains on the BOC to ease borrowing costs one more time before year end, all this despite the IMF predicting that all of the G7 economies will contract next year except Canada’s. BOC Senior Deputy Governor Jenkins said policy makers will probably cut interest rates again amid ‘major shocks’

Crude is weaker O/N ($57.87 down -37c). IAE expects global oil demand to average 86.2M barrels a day this year. Crude prices are down 63% from their summer highs and down 41% y/y. The fear of a deeper global recession continues to weigh on commodities as the World’s biggest economies enter a recession and demand forecasts are cut. The flight to the greenback does not help commodities cause.

Gold ($728) continues on a downward trend and a loss of more than 1 percent this week. As the USD advances against the EUR, the yellow metal losses its luster as a alternative investment.

The Nikkei closed 8,462 up -223. The DAX index in Europe was at 4,817 up +52; the FTSE (UK) currently is 4,326 up +157. The early call for the open of key US indices is higher. The 10-year Treasury yields eased 2bp yesterday (3.83%). Treasuries prices have rallied despite this week’s 10-year auction. US 2-year notes managed to print a five-year low (1.20%), as a drop in global equities boosted the demand for government debt. Traders have increased their bets that Bernanke and Co. will cut borrowing costs again below the psychological 1% to boost consumer confidence and revive growth.

Although there is great anticipation for what G20 leaders might come up with, there is also the expectation that they will not be able to reach an agreement on long term decision but rather short term stimulus packages.

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