Easy formula to remember according to today’s investment strategists:

G20 to clean up toxic assets + Gentle Ben saying that the recession may end this year (requiring a lot of if’s and buts’) + Barclay’s issuing a ‘strong’ start to 2009 = increased risk appetite, green light for equities, and an overvalued greenback.

Fait Complis! All is right with the world? You have me convinced………not. With no mark-to-market, of course the bigger financial institutions are solvent, it’s been proposed by the FASB that we use ‘significant judgment’ in valuing assets………Oh brother!

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

Yesterday’s US Empire manufacturing index unexpectedly weakened this month, with consensus looking for an improvement rather than a further deterioration (-38.2 vs. -37.7, the fastest pace on record). Some analysts believe that that this may lead to a weaker ISM print for this month (to data the correlation of the two indicators has been weak this year). That been said, yesterday’s print is a firm reminder that the US manufacturing sector continues to show signs of heightened deterioration as global trade weakens and domestic demand fades. Digging deeper one notice’s that new orders dropped to -44.76 and shipments plunged a further -18 points. Prices received and paid also fell at a faster pace, by default this would suggest that the risk of inflation is somewhat muted in the short-term. Inventory numbers remain close to record lows. However, the number of employees and average workweek improved slightly, but, it remains firmly entrenched in a downward spiral at a record pace. Future expectations (6-months out) are expected to improve only if the capital expenditure picks up otherwise a dismal 2009. This release was supported by the US Industrial production headline, which fell last month (-1.4% vs. -1.2%, 4th consecutive month) highlighted by the auto sector cutbacks and weaker exports percolating throughout the US economy.

The US$ currently is lower against the EUR +0.26% and higher against GBP -0.09%, CHF -0.16% and JPY -0.51%. The commodity currencies are little changed this morning, CAD +0.09% and AUD +0.15%. Despite the dismal economic data we witnessed last week, the loonie had managed to eke-out another winning trading session yesterday. The job loss announcement on Friday is very much in-step with US losses and continues to push the unemployment rate up (+7.7%). Analysts expect the BOC’s governor Carney to revise the banks economic outlook targets and perhaps adopt some extraordinary monetary policies to boost economic demand sooner rather than later. However despite all this, the currency remains caught up with whatever investor euphoria we are currently experiencing. By default, riskier trading strategies are dissuading speculators from owning a larger percentage of greenbacks vs. most of its trading partners. Even with commodities easing, do not be surprised to see $USD sellers on rallies as negative sentiment wanes. On aggressive pull backs look for some speculators to implement another short CAD position as the overall general malaise of the markets warrants it.

Despite Asian equities gaining traction on the back of ‘certain’ banks expecting a healthier year and convincing investors to add riskier assets to their portfolios, the AUD$ has retreated from last weeks highs. Investors remain concerned that the countries deteriorating economy may convince the RBA to lower interest rates to new record lows (0.6585).

Crude is lower in the O/N session ($46.82 down -53c). As expected crude pared some of last weeks late rally which was in anticipation of further production cuts by OPEC. Prudently this weekend they refrained from cutting output any further on concerns that higher energy prices in this economic climate could worsen this global recession. In fact they probably are deferring production cuts until May whilst they implement fully the last suggested quotas back in Dec. They need to trim another -800k barrels a day to comply with the lower quotas already decided on. OPEC is a difficult organization to implement consensus so it seems. Up to now, the commodity had only one supporter and that’s OPEC (they pump 40% of the world’s oil). On a technical level this decision will find the commodity not being able to penetrate the resistance level of $50 a barrel any time soon. On Friday, the IEA and OPEC cut their 2009 forecasts for oil demand for a 7th month and reduced supply estimates as the global economic slump saps consumption as well as investment in new fields. The former agency reduced its forecast to +84.4m barrels a day (decline of -1.25m y/y). OPEC’s estimates dropped to +84.6m barrels, a reduction of -1.01m barrels. Since Sept. they have cut production 3-times to slow the slump in prices and prevent a glut on world markets. Last weeks weekly EIA report was a surprise, crude stocks increased +0.7m w/w vs. a market expectation of +0.1m. That was the 20th increase in the last 24-weeks. Global economic data does not lend support to crude prices. Gold declined for the 1st-time in 4-sessions yesterday, as global equities reduced the demand for the ‘yellow’ metal as an alternative investment ($920). Look for better buying on pull backs.

The Nikkei closed 7,949 up +244. The DAX index in Europe was at 4,025 down -29; the FTSE (UK) currently is 3,824 down -39. The early call for the open of key US indices is higher. The 10-year Treasury yields backed up 5bp yesterday (2.96%) and are little changed in the O/N session. Gains in global equities continue to reduce demand for the safer heaven asset class of FI for now for now. The long bond particularly has lost favor with investors. Their yields touched the highest in almost 4-months as the pace of debt sales by the US government is expected to accelerate. Currently, risk market rallies are dominating future FI supply and risk aversion strategies.

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