Obama’s done with the selling, sit back and let the ‘Band-Aid’ take effect….

The secret laws of Swiss Banking as we know it have been broken forever as UBS will revel to the US government names of clients who ‘potentially’ tried to avoid domestic taxes. A landmark and far reaching decision for the small independent and neutral country of Switzerland whose currency strength and low interest rates were built on the secret transaction and anonymity of its clientele. However, the markets will not allow them to benefit any more, thus allowing the greenback to remain on solid footing once again this morning. Obama’s three pronged attack on recession combined with the deterioration of the situation in Europe and in Japan are reasons to favor the currency in the short term despite the US Treasury starting the ‘money printing presses’ and is heading to create a deficit of 13% of GDP in this year alone! Anything abnormal makes complete sense so it seems…..

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

Yesterday’s US housing starts fell to a new 2-year low as a lack of credit and plunging sales increase the severity of the worst real estate slump in 60-years. Starts fell another consistent -17% m/m, to an annual rate of +466k. With inventories at record highs due to rampant foreclosures, builders lack inventive to commence construction as ‘no demand’ and rock bottom price slashing continues to dissuade them. Escalating inventories is cutting their life line and Obama’s announcement yesterday that his administration will use $75b to bring down mortgage rates and encourage loan modifications to stem these repossessions can only help. Resulting in depreciating assets being removed from Banks balance sheets while at the same time hopefully potentially reducing the inventory issues. By default this will once again expand the roles of Fannie Mae and Freddie Mac in curbing these record foreclosures. The US Treasury will buy $200b of preferred stock in the two mortgage companies and their objective will be to help 5m homeowners to refinance conforming loans already guaranteed by both entities. The end result will be to try and ‘shore up property values’.

The US$ currently is lower against the EUR +0.71%, GBP +1.06%, CHF +0.11% and JPY +0.27%. The commodity currencies are stronger this morning, CAD +0.29% and AUD +1.08%. Canadian wholesale sales plunged -3.4% in Dec. on declines in goods ranging from cars to electronics, the most in 6-years yesterday. The economic data of late has been weak, solidifying Canada’s recessionary stance. The economy, who relies heavily on its southern partner (over 70% of all goods head south), does not expect any pick up soon. Some analysts are already revising their numbers and expect the economy to shrink 2% this year as opposed to 1.5% recommended a few months ago. Dismal exports, jobs and manufacturing growth will only impede the economy and currency even further. All that been said, the loonie received a shot in the arm from President Obama’s announced $75b foreclosure plan. The appetite for riskier assets probably gives Canadian bears an opportunity to add to their positions. Already this week the loonie has managed to print a new 6-week low as global equities and riskier assets took it on the chin. The ‘fear factor’ has speculators offloading the CAD dollar, most commodities and seeking safer heaven sanctuary in US government debt and gold. The depth of the ‘doom and gloom’ will continue to weigh on the currency as pessimism expressed in lower equity markets has nervous investors unsettled about wagering the ‘farm’. In this current market mood, traders are content in buying USD on pull backs. Do not be surprised to see the loonie threatening to penetrate that psychological 1.3000 level sooner rather than later, technically and fundamentally speaking, there is nothing to support the currency in the short term.

Rising Asian equity indices O/N provided support for the AUD$ as it rallied from its monthly lows on the threat of a much deeper and prolonged global recession continuing to pin down commodity prices. Maybe this is a temporary reprieve as we try to decipher all the recently introduced stimulus packages, look for traders to play the percentage game and sell the currency on rallies (0.6466).

Crude is higher O/N ($34.89 up +24c). Speculation that the weekly inventory numbers will once again show that stocks rose for the 19th time in 21-weeks has kept crude prices close to home, all this despite this weeks stoic retreat based on fear of the depth of this global recession. There is no appetite for the black-stuff as fear has once again forced investors to liquidate any risky positions. There will be no sustainable rally witnessed until we see global demand increase or inventory levels pared due to the OPEC production cuts. Year-to-date, crude is down 22% so far and threatening to once again make an assault on the psychologically technical level of $30 a barrel. For the past month speculators had bought into the theory that the substantial cut undertaken by OPEC this year (who represent 40% of global supply) will eventually curb these surplus global inventories and bolster prices. But, the market is telling us differently. The focus is on global macroeconomic thoughts rather than anything directly affecting crude. Already this week the Iraqi oil minister al-Shahristani said that OPEC may need to once again cut production quotas at their Mar. 15th meeting if prices and markets remain unstable. A risk aversion strategy has investors looking a ‘store of value’ and buying the ‘yellow metal’ as financials and global equities remain under pressure ($975). Investors are gravitating towards precious metals as a safe heaven asset class.

The Nikkei closed 7,557 up +23. The DAX index in Europe was at 4,199 down -5; the FTSE (UK) currently is 4,007 up +1. The early call for the open of key US indices is higher. The 10-year Treasury yields backed up 4bp yesterday (2.75%) and another 3bp in the O/N session (2.78%). After this weeks already rapid advance, the front end of the FI market happily gave up some ground as traders speculated that the US will sell another record amount of short term debt next week, thus encouraging investors to swap temporarily for longer dated securities. Today we will get to find out what the 2’s, 5’s and 7-year amounts will be, it’s rumored to be around $97b.

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