Can President Obama live up to the hype and hope?

To date, he has done little to dampen individual’s hopes, but, he has raised the world’s expectations perhaps dangerously high. He has promised to create +3m new jobs. Directly, he can create government jobs, but indirectly the bulk of the job creation has to be done by businesses. For months we have witnessed companies doing the prudent action of slashing jobs, thus far, there has not been enough incentive to reverse this action.

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 ‘volatile’ trading range.

The holiday is over, today, the US President elect becomes President and the real work begins. One has to enter office running, there is no time to take a breather, and never has so much has been expected from one individual. World leaders want to follow as Obama takes the lead. The stakes are high and patience is waning. Social discontent is starting to appear in pockets through out Europe (Latvia, Greece, Spain and Paris). We are witnessing the populous justifiably distraught as economies contract and rising unemployment disrupts their lives. Not long ago Milton Friedman questioned the ability of the EUR to survive its first real recession. We have arrived. We must ponder this as the recession becomes more entrenched throughout Europe. For instance in the UK where there is over +2m unemployed, employers will be prevented from advertising jobs overseas under plans being drawn up to ensure that British workers fill vacancies during the recession. The Euro-zone is composed of a series of cultures and it’s this, more than any other variable poses the biggest threat to the EUR’s survival!

The US$ currently is higher against the EUR -1.01%, GBP -2.86%, CHF -0.86% and JPY -0.06%. The commodity currencies are weaker this morning, CAD -0.49% and AUD -1.22%. The loonie remains well entrenched on that slippery slope towards our medium term target of 1.2800. Yesterday, it depreciated for a 6th-consecutive day as commodities and global equities declined as consumers remain concerned about a deteriorating global economy. Nothing technically or fundamentally has been providing support for the ailing loonie at the moment. Risk aversion strategies have dominated the month as investors seek sanctuary in owning the greenback. The currency has remained under intense pressure as commodity prices continue to suffer. After last weeks EIA report, do not expect the loonie to outperform any time soon. Oil prices have plummeted -80% since their peak in July, Canada’s exports have been deteriorating at a rapid pace, adding to economic weakness in other areas of the economy, and causing the BOC to continue its easing campaign. Futures traders are pricing in a 50bp ease by Governor Carney this morning, but going even deeper would not be a surprise. Consensus has the loonie trading under pressure for the remainder of this quarter and backing up towards the 1.2800 level again.

Despite weaker economic data down-under this week, robust global equity markets has convinced investors to abandon some of their risk aversion strategies and invest in some higher yielding currencies like the AUD on deeper pull backs (0.6635). Do not expect this scenario to be sustainable!

Crude is lower O/N ($32.80 down -371c). Demand destruction remains the order of the day. Investors continue to book well earned profits after yesterday festivities. The theme for last week saw that crude prices came under renewed pressure as OPEC said that demand for its black-stuff will decline -4.2% this year as the recession in the US, Europe and Japan curbs fuel consumption. It’s expected that consumption of OPEC’s oil will shrink -1.4m barrels a day to +29.5m barrels. Last week’s EIA report has ended up being more of a hindrance than an aid for crude prices. The data showed that crude stockpiles climbed to a 16-month high as fuel demand continues to deteriorate. Crude stocks increased +1.14m barrels to +326.6m last week, the highest since August 2007. Fuel demand has dropped 6% to an average +18.6m barrels a day, surprisingly the largest 1-week decline in 5-years. Gas inventories rose +2.07m barrels to +213.5m, higher than the anticipated +1.85m expected. On the other hand supplies of distillate fuels (includes heating oil and diesel) surged +6.35m barrels to +144.2m, the biggest gain again in 5-years. The geo-political issues in Gaza and the on-going Russian Ukraine natural gas crisis has been no match for demand destruction caused by weakening economies, even if they are capable to resolve their differences after last weekend’s brokered meetings. Analysts anticipate that we will once again test Dec. lows and even print a $20 handle, all this on the back of the North American reports been so poor. Gold eased yesterday as crude oil slumped and the greenback managed to gain vs. the EUR, thus reducing the ‘yellow metal’s’ appeal as an inflation hedge and alternative investment ($831).

The Nikkei closed 8065 down -191. The DAX index in Europe was at 4,471 up +56; the FTSE (UK) currently is 4,169 up +61. The early call for the open of key US indices is lower. The 10-year Treasury yields backed up 12bp in the O/N trading session (2.44%). Treasuries have pared all of last week’s gains despite weaker economic data. But, with global equities and specifically financial stocks remaining under pressure, this should provide some better buying of the FI asset class on deeper pullbacks.

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