USD receives a boost from Walmart and new accounting proposal

As traders and analysts alike await the NFP final figure for January, President Obama declared that “The time for talk is over, the time for action is now,” while referring to the $900 Billion Stimulus package he proposes and expects to be approved before February 16th. One of the points of contention is the size of the package, and if Republicans have their way it would be greatly reduced to something like $700 Billion. As Senators from both parties negotiate a common ground statements are fired from both camps.

The ECB held rates at 2.00% in line with expectations that Trichet and Co. would not cut while the Bank of England slashed rates by 50 basis points to reach 1.00% as European and the UK’s economic data weakened the outlook across the Atlantic. The European Central bank has signaled a possible 25 basis point cut in March, but warns that it is not seeking a zero interest rate policy.

The US$ is mixed in the O/N trading session. Currently it is higher against 9 of the 16 most actively traded currencies, in a ‘whippy’ trading range.

Jobless claims rose to a 26th year high as the US economy continues to sink deeper into recession. Unemployment benefits rose 35k to 626k in January above analysts expectations According to the ADP report Companies cut -522k jobs last month after a dismal holiday sales season. The drop was less than analysts had anticipated (-528k) and followed a revised cut of -659k (-693k) for Dec. It is worth noting that ADP revised its methodology last year to try and eliminate the wide spread between its calculations and the NFP payroll numbers. Regardless of the final figure, what its worrisome is the lack of hiring and new job openings which is a trend that will continue well into 2009.

The US$ currently is higher against the EUR -0.02%, JPY -0.13%, and CHF -0.07% and lower against GBP -055%. The commodity currencies are mixed this morning, CAD -0.68% and AUD +0.49%. The loonie remained little changed despite an appetite for the currency on the back of some M&A requirements coupled with commodities remaining better bid all day. Risk aversion trading strategies continues to dominate the currency’s value, as investors seek a percentage of safer heaven assets rather than higher yielding commodity currencies in abundance. Pessimism expressed in lower equity markets has nervous investors unsettled about wagering the ‘farm’. North American employment data at the end of this week will provide a directional play, but until then, flows and sentiment will dictate an erratic path. In this current market mood, traders are content in buying USD on pull backs.

The AUD (0.6586) had the first positive week in 2009 helped by the rise in commodities and stability in the World’s Capital Markets. The currency pared some gains later in the day as the RBA lowered Australia’s growth forecasts to just 0.25% this year.

Crude is lower O/N ($40.20 down -235c). Crude depreciated after lower demand for Energy in the US and signs that the OPEC production cut is not being carried out by all members, which will result in higher production than expected. OPEC production averaged +28.57m barrels a, down -3.5% from Dec. According to refiners, both the UAE and Qatar will expand on crude shipments in Mar. Is the market slowly buying into this development or wishful thinking on the bull’s behalf? Saudi Arabian Oil Co., (the world’s largest state-owned) has raised the official selling prices for all of the crude types that it will export to customers next month. Continuous negative global data is impeding the medium term strength of any rally. Capital markets require stronger evidence for sustainability. Technically speaking we continue to gyrate around the $40 mark, and it’s a coin toss for any directional play at the moment. Oil is still down 73% from the high printed in July last year.

Gold ($914) has benefited strongly from the speculation that government spending will boost economies and lead to inflation, making the metal an alternative investment to hedge against it.

The Nikkei closed 8,076 up 126. The DAX index in Europe was at 4,551 up 40.84; the FTSE (UK) currently is 4,258 up 0.69 The early call for the open of key US indices is higher. The 10-year Treasury yields backed up 2bp yesterday (2.88%). As the Capital Markets around the world appear optimistic about the US government stimulus package and proposed accounted changes, Financials seemed to have gained the most as some confidence has returned to the industry. The impact that NFP will have on the market remains to be seen as it is already discounted that the US Economy will lose over 500,000 jobs. It only remains to measure if the figure is below or above expectations by tens of thousands.

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