Obama’s Plan passes Senate as Bad Bank resurfaces

The Stimulus package put forth by the Obama administration has passed through Senate despite Republican opposition virtually untouched. The Stimulus original size was $900 Billion and was only reduced to $838 Billion. The vote was 61-36 only one vote over the needed 60 votes. .

The US$ is stronger in the O/N trading session. Currently it is higher against 14 of the 16 most actively traded currencies, in a ‘whippy’ trading range.

Treasury Secretary Tim Geithner was scheduled to speak yesterday but was postponed to today at 11:00 am. It is expected that a “bad bank” will be announced as a measure to aggregate toxic assets into a single government created Financial Institution.

The Euro depreciated against most major pairs after a Japanese newspaper reported a bigger link between European financial institutions and Russian Banks. The Nikkei newspaper also mentioned a plan to reschedule loans which will cause trouble for the lenders.

The US$ currently is higher against the EUR -0.79%, GBP -0.56%, CHF -0.26% and lower against JPY 0.14%, The market is optimistic about the Stimulus Bill and the Bank Rescue package put forth by the Obama Administration and have boosted the currency and investors will be following both events closely.

The commodity currencies are lower this morning, CAD -0.26% and AUD -1.53%. Financials stocks in the TSX received a boost by the scheduled unveiling of the Bank Rescue Plan by Treasury Secretary Geithner later today. The loonie depreciated after the Canadian announced last Friday that the economy shed 129,000 jobs, the most in recorded history.

The AUD (0.6686) has depreciated after reaching a one-month high after consumer confidence was reported at a record low. Risk aversion strategies started to dominate after the news of Russian Businesses that want to renegotiate loans worth $400 Billion.

Crude is higher O/N ($40.04 up 1.21c) Oil has operated in a short range in expectation for the Stimulus bill. NFP Job losses in the US reduced demand for oil and drove the price down. An approved bill if successful in reactivating the economy would mean an increase in demand of crude. Oil has retreated sharply from historic highs of $150 a barrel last summer. OPEC members announced a production cut in order to boost the price of crude above its current levels, which they claim are not enough to invest in new supply.

Gold ($896) retreated after breaking the $900 level. The USD has strengthened against the EUR which reduces the appeal of the metal as an alternative investment, although if the Stimulus Package passes this week it could drive investors to the commodity looking for an inflation hedge.

The Nikkei closed at 7945 down 23. The DAX index in Europe was at 4,588 down 78; the FTSE (UK) currently is 4,261 down 46. The early call for the open of key US indices is lower. The 10-year Treasury yields fell by 4bp (2.95%). Bond prices have dropped in expectation for the plans to sell an accumulated $67 Billion in three year, 10 year and 30 year notes this week. Several factors point to a recovery of bond prices. Risk aversion increased towards the end last week as Government Officials and International Economic Leaders commented on the deepening recession in a global scale. China’s losses in the Blackstone Group left the Chinese government looking to invest in more secure assets. China is the world’s largest holder of US Treasuries ($681B).

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