A Christmas wish list…..a Job?

Where is the love? We don’t love the greenback, we don’t love equities, and even Wal-Mart does not like its own stock! This quarter we abhor commodities and its not even Christmas. Expect some violent and unexplained trading ranges for the remainder of the month as both liquidity and tight prices become a mirage…

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

Next month US jobless rate will certainly be a headline eyesore. These 12-days of Christmas promise to deliver more headline job-cuts and push up the unemployment rate. Over the last trading session, Sony and Rio Tinto have committed to shed 30k jobs globally. The pressure is on for this global economic slide to go much deeper and last so much longer. Analysts are falling over themselves to declare that equity markets may have another 50% of slippage in them as deflation takes hold. So far the EUR has held, but it’s widely anticipated that Trichet and his policy makers will stand pat next month on interest rates, citing that the full effect of their ‘aggressive’ cutting has not gone through its cycle. The Fed on the other hand will continue to be ahead of the curve and aggressively cut. The question of course will be, will the EUR get a boost from interest rate differentials or suffer as fundamental data worsens throughout mainland Europe? It’s very difficult to predict currency values in these extraordinary times, daily we go from optimism to pessimism. We now have to worry about the worlds 4th largest economy, China. Data shows that their exports fell for the 1st time in 7-years (-2.2 in Nov. y/y) and imports plunged -17.9%. This provides further evidence that the recessions in the US, Europe and Japan is pushing their economy into its own slump.

The US$ currently is lower against the EUR +0.27%, GBP +0.54%, CHF +0.03% and higher against JPY -0.42%. The commodity currencies are stronger this morning, CAD +0.03% and AUD +0.06%. Governor Carney stood tall and delivered an unexpected ‘deep interest rate’ cut yesterday. The market expected 50bp, the economy warranted 75bp and Carney pushed rates to a 50-year low of 1.5% vs. 2.25%. In his communiqué he signaled that more action may be needed as economic growth sputters in a ‘broader and deeper’ global slump. None of this of course is positive for commodity prices and by default this will not be positive for economies such as Canada’s that rely heavily on their export sector (crude accounts for approximately 10% of all of Canada’s export revenues). According to the BOC, the Canadian economy has entered a recession (someone should convince his employers that that’s the situation). With such a ‘dovish’ tone expressed by the BOC coupled with weaker economic data of late (last week’s employment numbers were dismal) there is definitely room for the currency to make an assault on this year lows before year end. The political and economic dynamics will push the currency towards 1.3300 in the short term. The unsettling political debacle in Ottawa has forced PM Harper to suspend Parliament to stave off a no confidence vote before he introduces the budget to the house in late Jan. It’s unbelievable that in the worst global economic crisis in our lifetime, the Canadian Government effectively is in on hiatus for two months. Traders continue to be better buyers of USD on pull backs.

The AUD dollar advanced in the O/N session after regional bourses stayed in positive, fueling speculation that investors may increase their holdings of higher-yielding assets. Fundamental data also provided a lift for the currency. Consumer confidence increased for the 2nd month in a row (due to the deep cuts by the RBA) and home loan approvals gained in Oct. for the first time in 9-months. Let’s see how the currency performs after this evening’s Australian employment report. To date the currency has remained better bid on pull backs as investors continue to speculate that Cbank interest rate cuts around the world will bolster economic growth (0.6570).

Crude is higher O/N ($43.12 up +102c). The short term energy outlook provided by the US energy department yesterday stated that that global demand will decline this year for the first time in 25-years. They anticipate that oil consumption will average +85.75m barrels a day, down -50k barrels from 2007. They also believe that demand will average +85.3m barrels a day in 2009, down -0.5% from this year. The 2009 demand estimate is -630k lower than they forecasted just one month ago. Today’s weekly EIA report is expected to show that crude stocks rose w/w by +1.5m barrels. Since the record highs achieved at the beginning of the summer crude has managed to decline nearly 72% and technically there is nothing stopping prices from falling much further in the short term as demand destruction prevails. OPEC has it back very much against the wall, earlier this week Libya’s top oil official said that OPEC should make a ‘substantial’ output cut at its meeting in Algeria on Dec. 17th. Already the week Saudi Arabian Oil Co. (worlds largest) announced that they would reduce crude oil supplies to Japan in Jan. Last week the black-stuff hit it lowest levels in 4-years as traders bet that a deepening recession in Europe, Japan and the US would erode future consumption, technically one should expect prices to firm as we approach next week’s OPEC meeting. Last week we witnessed the biggest one week declines since Sept. Consumption averaged +19.6m barrels a day, that’s up +0.6% from the week before, but down -5.7%, y/y. OPEC wants and needs prices between $70 and $80 a barrel, a desired level at which one can invest. Gold prices have rallied as the greenback has pared many of last week’s gains and increased the appeal of the ‘yellow metal’ as an alternative investment ($770).

The Nikkei closed 8,660 up +264. The DAX index in Europe was at 4,777 down -1; the FTSE (UK) currently is 4,346 down -46. The early call for the open of key US indices is higher. The 10-year Treasury yields eased 5bp yesterday (2.68%) and are little changed in the O/N session. Treasury prices aggressively advanced in these extraordinary times as investors seek ‘safer’ heaven opportunities. Yesterday for the first time, 1-month US T-bills traded in negative territory as investors sought the safety of US debt amid the worse financial crisis in 80-years. Year end demand has very much exasperated the situation as companies shore up balance sheets before the New Year. Earlier this week the US treasury announced a larger than anticipated auction amounts ($44b of 3’s and 10’s). With a larger supply, traders will want to cheapen up the curve. Traders are raising their bets that the Fed will ease by 75bp on Dec 16th.

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