Obama expects more Banks to fail!

This market seems to be punch drunk from negativity! There is no short term relief in sight, as capital markets from continent to continent take it on the chin. Lack of Corporate and Policy makers’ guidance continues to lead us to a standing count! There are only so many sucker punches that one can absorb before it will be officially ruled a defeat. Something has to give soon; we do not want to be relying on a ‘Hail Mary Pass’!

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 ‘subdued’ trading range.

Yesterday’s data continues to paint a bleak picture for the US economy. Dec. personal income fell by -0.2% m/m from a downward revised -0.4% in Nov. As for personal spending, the monthly decline was deeper than expected by analysts, with the index falling by -1% m/m. It’s worth noticing that in addition, Nov. figures were revised down to -0.8% from -0.6%. The pace of decline of personal spending is also related to disinflationary pressures. The PCE deflator fell by -0.5% in Dec. Focusing on the deflators, there is also some downward pressure in the core index. The core-PCE was flat over the month, with the y/y growth decelerating to 1.7% from 1.9% in Nov. This seems to suggest that disinflationary pressures are wide-spread across all the main components. At the current stage, disinflation is one of the main reasons of concern for policymakers and the tone of the last FOMC statement remains vigilant. ‘In light of the declines in the prices of energy and other commodities in recent months and the prospects for considerable economic slack, the Committee expects that inflation pressures will remain subdued in coming quarters. Moreover, the Committee sees some risk that inflation could persist for a time below rates that best foster economic growth and price stability in the longer term’. The loss of just under +3m jobs last year, coupled with the erosion of family wealth by declining property values continue to undermine consumer confidence. This will only lead to further loss of sales and deepening prices cuts!

The US$ currently is higher against the EUR -0.01%, GBP -0.21%, CHF -0.04% and lower against JPY +0.07%. The commodity currencies are mixed this morning, CAD -0.14% and AUD +0.86%. Risk aversion trading strategies continues to push the loonie lower as investors seek the safer heaven asset class of the greenback rather than higher yielding commodity currencies. Pessimism expressed by lower equity markets has convinced investors once again to enter risk aversion trades. 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 RBA under Governor Stevens cut its benchmark rate to its lowest level in 45-years (3.25% vs. 4.25%), combine this with the government announcing that it will spend a further $42 billion to by-pass a recession has the currency out performing in the O/N session (0.6356).

Crude is higher O/N ($40.52 up +44c). Same story, continuous negative data out of the US, the world’s largest energy consumer has oil again paring the last of last weeks advance. Friday’s unexpected GDP numbers gave oil prices a temporary boost, with the economy contracting less than expected gave false hope that energy demand may strengthen. Oil is still down 73% from the high printed in July last year. Labor issues with steel workers and Royal Dutch Shell received a reprieve at the weekend. They have been able to extend negotiations on a new contract, thus delaying a potential strike that would have affected at least 2/3rds of production capacity. The negotiations cover workers at 86 plants including operations owned by Exxon, Valero, BP, Chevron and Shell. The IEA and OPEC continue to foresee a drop in global demand this year. Even last weeks EIA report did not surprise in respect to crude inventories, they have now risen for the 16th time in 18-weeks. Weekly inventories jumped +6.22m barrels to +338.9m over the period vs. an expected climb of +2.9m. But, surprisingly gas stocks fell -121k barrels to +219.9m last week vs. an expected climb of +2m barrels. But, bearish economic data continues to highlight the depth of the global recession. Demand destruction remains the order of the day. The black-stuff is finding it difficult to maintain any bullish momentum, all this despite investors speculating that global stockpiles would decline when OPEC fully implements its promised production cuts. It is expected that OPEC will curb supplies by -5.4% to +26.15m barrels a day. After last weeks rampant move higher, investors were happy to take some positions off the table and book some profit. With global equities remaining under pressure, gold will continue to find support on deeper pullbacks as investors seek an alternative investment ($910).

The Nikkei closed 7,825 down –48. The DAX index in Europe was at 4,281 up +10; the FTSE (UK) currently is 4,074 down -4. The early call for the open of key US indices is lower. The 10-year Treasury yields eased 12bp yesterday (2.78%) and are little changed in the O/N session. The long end of the US yield curve remains better bid on pull backs as traders anticipate that the Fed will eventually be in a position wanting to buy longer dated securities as a part of their long term stimulus plan. The middle of the curve also found support despite last weeks issues, negative global equities has some investors seeking shelter in this asset class for the time being as recession seems to be deepening!

10:00 am USD Pending Home Sales m/m 0.0% vs. -4.0%
All Day USD Total Vehicle Sales 10.2m vs. 10.3m
4:45 pm NZD Visitor Arrivals m/m 0.8%

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