Doomsayers are loud again!

Negative headlines once again are pressurizing global equities. Doomsayers expect equity markets to pare close to 10% before resuming this rally in the second half of the year. S&P’s has rallied close to 25% from the beginning of Mar. (a technical correction is somewhat overdue). Europe recession is deepening, more than originally estimated last month, as GDP was revised down to -1.6% vs. the announced -1.5%. Companies continue to scale back production as consumer spending declines. Today, Ireland holds its 2nd emergency budget in 6-months. The former ‘Celtic Tiger’ is expected to shrink the most of any Euro-zone this year. Last week it became the 4th-member of the region to be downgraded this year. How quickly one goes from the very top to the bottom!

The US$ is stronger in the O/N trading session. Currently it is higher against 12 of the 16 most actively traded currencies, in a ‘whippy’ trading range.

In this shortened trading week due to Good Friday, there is little ‘extraordinary’ data that will sway investors a great deal. The FI market will probably get most of the attention as never ending supply of new issues ($2.5t for this year) continues to be pumped into the system. The debate of demand vs. supply and an early close this Thursday could provide some fireworks at the 10-year auction ($18b). Analysts once again fear that ballooning bank losses will cripple the financials and the 4-week ‘bull’ or ‘bear’ equity rally has convinced a percentage of investors to pare some of their positions. Headlines from Soros stating that US recapitalizations of financials has taken the wrong shape (too similar to Bush policies) and will not allow them to provide credit going forward certainly does not appease investor’s fears!

The USD$ currently is higher against the EUR -0.38%, GBP -0.11%, CHF -0.04% and lower against JPY +0.47%. The commodity currencies are mixed this morning, CAD -0.19% and AUD +0.02%. The loonie faltered yesterday as global equities and commodities took it on the chin, persuading speculators to gravitate towards the greenback as they shied away from riskier assets. Canadian data showed that headline building permits fell by 4-times the expected pace for Feb. (-15.9% vs. -3.6%). However, analysts note that a large percentage of the decline was due to data distortion that was underestimated by consensus, due to volatility in medical building permits (+64% once off in Jan.). Digging deeper, another sharp decline in single family housing permits (-5.5%) is convincing enough of how weak the housing sector remains. Other factors continue to contribute to a weaker CAD, BOC Governor Carney will announce at the end of this month a plan that would ‘flood banks with cash to halt the hoarding of capital and expand lending’. We have witnessed other currencies depreciate significantly when their governments entertained quantitative easing methods (BOE, BOJ, Fed). Secondly, it’s difficult to want to own the currency ahead of this week’s employment numbers on Thursday (Friday is a national Holiday). For now, one should expect to buy USD on pull backs.

RBA governor Stevens surprised the market somewhat and only cut Australian O/N rates by 25bp vs. the 50bp that the street was expecting (3.00%). He has now trimmed rates to a 49-year low. The AUD$ managed to pare its initial losses on the back of this less than aggressive ease. Investors will now revert back to commodities and equities to gage the currency future value. Expect Australians to receive further economic stimulus in next month’s budget (0.7084). Traders continue to buy on pull backs for now.

Crude is lower in the O/N session ($50.53 down -52c). It was all too good to be true. Crude prices slipped yesterday as US equities declined on speculation that bank loan losses will continue to increase. Nervousness about the equity markets has heightened again after analysts recommended selling financials for that very reason. It did not help that Qatar’s Oil Minister said he ‘does not expect prices to rebound to $70 a barrel this year’ as OPEC implements its biggest-ever supply reduction. Inventory levels remain the curse for prices. Until we see inventories decline substantially, there will not be a sustained gain in price. Oil temporarily advanced last week after leaders at the G20 agreed on measures to fight the global recession. However, industrial reports showing that rising oil inventories and falling demand continues to signal that the worst of the recession may not be over. Last week’s EIA report showed that US stock levels rose to a 15-year high as this global recession continues to curb demand. It was the 23rd gain in 27-weeks. Inventories climbed +2.84m barrels to +359.4m vs. an expected increase of +3m. Most surprising was gas supplies, which unexpectedly rose by +2.23m barrels to +216.8m w/w. Investors should treat last weeks advances as a bear market rally until the 2nd-half of the year when by then we will have burned off some of the excess. Gold fell yesterday for various reason, firstly, technical and secondly, some new found optimism. The vulnerability of some medium term support levels had traders pushing prices to a new 2-month low and erasing all of this year’s gains. The market also fears that the IMF will be in a situation to start selling some of their stocks levels to finance specific projects ($877).

The Nikkei closed 8,832 down -25. The DAX index in Europe was at 4,285 down -64; the FTSE (UK) currently is 3,951 down -42. The early call for the open of key US indices is lower. The 10-year Treasury’s eased 1bp yesterday (2.89%) and are little changed in the O/N session. Treasury prices were little changed yesterday despite the US continuing its buy back program (between 10 and 17-year product to keep long end borrowing costs down). In this shortened trading week we will also see the US Government Issue another $55+b of new debt. After the buy-backs, expect traders to shift their focus to the anticipated record supplies of US debt, and by default cheapen the curve once again. What will happen if an auction fails? Thursday is an early close, what are the chances it will not go according to plan!

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