Tim, it’s your time to shine!

All eyes will be on Treasury Secretary Timothy Geithner (who day’s feel numbered) this morning. He will be outlining the much awaited details of ‘his’ public private investment program to rid the financial system of toxic assets. Technically, the program will be run by private investment managers, but be financed with a combination of private money and capital from the government. His objective is to ‘provide a market for these assets that does not now exist, help improve asset values, increase lending capacity by banks, and reduce uncertainty about the scale of losses on bank balance sheets’. No wonder mark to market is a no-go!

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

Not a good O/N session for both the JPY and the greenback. JPY fell to a new 6-month low vs. the EUR; while the USD floundered with traders speculating that the US government steps to help banks dispose of toxic assets will only increase demand for higher-yielding currencies. Market optimism is slowly dragging back the ‘carry’ demand. Currently the market favors pushing the USD lower as risk appetite improves. The EUR seems to have been selected as the currency of choice by traders as CBankers purchase debt securities as a way of lowering their own interest rates and flushing cash into ‘their’ financial systems. With the ECB currently avoiding using any quantitative methods to boost their economy, it will remain the currency of choice, however, when or if Trichet enters the ‘easing’ fray that will be the top for the EUR!

The US$ currently is lower against the EUR +0.58%, GBP +0.91%, CHF +0.35% and higher against JPY -0.19%. The commodity currencies are stronger this morning, CAD +0.62% and AUD +1.41%. The loonie is caught within a 300 point trading range, 1.2200-1.2500. The currency has soared over the last couple of trading sessions as the USD$ plummeted vs. its biggest trading partners. On Friday the greenback was able to regain some of its luster after record losses technically went too far too quickly. There is no fundamental reason why the CAD$ should be stronger, on a cross related basis its very much underperforming, but, speculators are certainly getting whiplashed from this volatile market. Robust commodity prices have certainly given the currency a temporary leg up. Dismal data of late has prompted ex-Governor Dodge to disagree with both the Canadian government and current BOC chief Carney that we will experience a faster recovery. On any further pull backs look for speculators to add to their short CAD positions.

The AUD remains buoyant this morning and heading for its 10th consecutive session, the longest in 2-years, on the back of global commodities surging and the greenback sliding on concerns that the Fed’s plan to keep yields low will only weaken the USD$ further and promote the higher yielding AUD$. However, investors remain concerned that Australia’s deteriorating economy may convince the RBA to lower interest rates to new record lows (0.6960). In this current environment one should expect better buying on pull backs.

Crude is higher in the O/N session ($52.54 up +47c). On Friday, Crude oil fell from its 3- month high as the greenback clawed back some ground vs. the EUR, thus decreasing the appeal of some commodities as an alternative investment. The depth and scope of the Fed’s announcement on quantitative easing last week has temporarily at least instilled optimism about the outlook for the US economy. This gave crude the desired support that went someway in appeasing OPEC. We are back to moving on the USD$, crude prices rose 10% last week and year to date has advanced 14%. It’s not just OPEC’s support that’s pushing crude higher. Some analysts believe that the recent rally has very much overshot its mark and with demand destruction remaining robust investors should expect a significant pull back once again. Even last weeks weekly EIA report was bearish for crude prices. Inventories climbed +1.94m barrels to +353.3m vs. an expected increase of +1.5m. Supplies of gas and distillate fuel (heating oil and diesel) also increased. US demand dropped -0.6% last week to +18.8m barrels a day, while total daily fuel demand over the past month was + 19.1m, down -3.2% from a year ago. Gold fell on Friday after the USD$ rebounded against most of its major trading partners and with it eroding the appeal of the yellow metal as an alternative investment ($955).

The Nikkei closed 8,215 up +269. The DAX index in Europe was at 4,148 up +80; the FTSE (UK) currently is 3,913 up +71. The early call for the open of key US indices is higher. The 10-year Treasury yields backed up 10bp on Friday (2.65%) and are little changed in the O/N session. Despite investors booking some profits, treasuries posted the largest weekly advance last week in 3-month’s. The Fed’s plan to buy up to $300b in US debt has put an artificial cap on FI yields despite the issuance of weekly record supply. Psychologically the ceiling for 10-year product will be around 3% for some time to come. Policy makers are now determined that yields will not rise given the current economic environment. Technically they are artificially manipulating the FI market and speculators will remain better buyers on pull backs.

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