The United Arab Emirates offered its support to Dubai as the struggling member-state attempts to restructure more than $26 billion in debt. State-owned conglomerate Dubai World DBWLD.UL is holding informal talks with major creditors, which include HSBC and Standard Chartered, in London this week as it finalizes a deal.
Source: Reuters
After hitting a six-week high on Monday, markets tumbled in early trading as investors paused to take a closer look at recent data. Both the euro and sterling fell against the dollar and oil, despite rallying earlier in the day, was off by 2 percent by day’s end.
On Monday, oil touched $82 a barrel for the first time in two months, but slid to $80.22 as analysis showed that US crude inventories continue to grow.
“Forecasts of yet another build in U.S. crude stocks show the disconnect between the fundamentals of oil supply and demand, which are quite bearish, and hopes of economic recovery, which are bullish,” said Commerzbank analyst Carsten Fritsch.
“But the market doesn’t seem to want to hear negative news for long and tends to react more strongly on the upside. It is two steps upwards, one step down at the moment.”
Source: Reuters
Few seem convinced about the Euro-zone escaping further repercussions. Even leaders and policy makers disagree on ‘the positive actions’ to be taken. Greece, technically, could be the smallest of all of the European economies problems, as other members begin to impose their own self-austerity plans. ‘Loose lips’ yesterday by the Greek’s PM has investors questioning the value of the EUR. The market needs a distraction, and seems to be shifting towards the Yuan ‘potential’ revalue. The Governor of the PBOC has indicated that the days of the ‘special Yuan’ policy were numbered. He described the dollar peg as a ‘temporary’ response to the global financial crisis, but gave no timescale for any change in policy. Expect a lot of analysis to be written about this topic over the coming days. What ever happens, the ‘reval, non-peg’ will be a gradual move. No policy maker will want to expose their economy to a sudden shock. Let the speculation begin.
The US$ is stronger in the O/N trading session. Currently it is higher against 13 of the 16 most actively traded currencies in another ‘subdued’ trading range.
Even with the lack of North American data yesterday there was a subtle undertone that leant towards risk-off again. ECB’s Stark’s comments that the talk of a European Monetary Fund should be rejected and Merkel indicating a ‘no-go’ light for Greece in the form of financial aid has had traders booking profits. Sarkozy’s rhetoric at the weekend temporarily provided a leg-up for the EUR. However, the Greek Prime Minister loose comments that his country’s fiscal crisis could spread beyond Europe certainly did no favors for the EUR. When there are so many cracks appearing it’s difficult to just use a temporary fill. The market continues to remain on edge about a contagion scenario occurring within the Euro-zone. .
The USD$ is stronger against the EUR -0.25%, GBP -0.50%, CHF -0.22% and weaker against the JPY +0.49%. The commodity currencies are little changed this morning, CAD -0.10% and AUD -0.01%. With crude and equities reversing earlier gains yesterday, managed to weigh heavily on the loonie. Any currency tied with growth always finds it difficult to maintain its strength on weaker global bourses. Monthly correlation stands at +0.6, a reading of 1-equals a hand-in-hand move. Stronger Canadian housing starts data (+197k vs. +185k) did little to aid the domestic currency. Analysts believe that the stronger activity was brought forward into the spring market to avoid any new-additional taxes that will be implemented next month. Last week, the loonie managed to appreciate to its highest level in 2-months. This Friday we get to see the Canadian employment report. Last week, the BOC did what was expected of them, by keeping rates on hold. It seems that they are potentially ‘behind the curve’. Their following communiqué was hawkish in nature, leading to somewhat predictable rate increases for the second-half of this year. The trend remains your friend. expect better buying of the domestic currency on USD rallies in the medium term.
The AUD managed, at one point, in the O/N session to print a seven-week high, on demand for the higher yielding asset, after ads for job vacancies jumped by the most in more than a decade. This prompted speculation that the RBA will raise interest rates again next month. With global bourses again in the ‘red’ this morning, is pressurizing growth and commodity based currencies. It seems that risk is off-again. Last week the RBA hiked rates by +25bp to +4%. Governor Stevens said ‘rates should be closer to average’, which policy makers have indicated may be 75bp higher than the current +4%. Analysts believe that the ‘the biggest jobs boom in more than 3-years and a surge in business confidence suggest Australia’s economy is already growing at or close to trend, after escaping recession during the global crisis’. Reading between the lines, we should expect the RBA to hike with a ‘gradual approach’. Continue to expect better buying on deeper pull backs (0.9077).
Crude is lower in the O/N session ($81.00 down -87c). Crude was little changed yesterday, in fact a dull day of trading for the black-stuff, especially after last week’s late surge on the back of stronger than expected employment data. It was the optimism that fuel demand will climb in the world’s biggest energy consuming country that pushed the commodity to encroach on its recent highs. Now that we have firmly broken the psychological $80 a barrel, some technical analysts believe this opens the way for a $90 print. However, the market will want to witness a few elevated closes before buying into their theory, especially ahead of the OPEC meeting on Mar. 17th. With global bourses under pressure this morning, expect some bulls to second guess their positions. Already the Saudi Arabia’s King Abdullah has targeted $75 as a fair price for consumers and producers. Last week’s EIA report showed that refinery utilization rates are at their highest since Oct., a sign that gave the bulls the green light to keep the commodity’s prices somewhat elevated. Utilization rates increased +0.7% to +81.9% last week. The headline print for crude climbed +4.03m barrel (more than three-time’s estimates). The market is now expecting the higher utilization rate to quickly ‘mop up excess supplies’. The total US fuel demand averaged over the month was +19.3m barrels (+3% y/y). Digging deeper, other fuel stockpiles came in close to expectations, with gas up +800k barrels and distillate inventories (heating oil and diesel), down -800k. It seems that this market may be supported ‘on air’ rather than the fundamentals. Technical traders love this. With momentum and an investor attitude that the economic situation will not get much worse, will support commodities on pull back, for now at least.
It seems that some of the risk premium that the ‘yellow metal’ managed to accumulate last week on Greece’s woes was exited yesterday. Investors were happy to cash in on their profits that were booked using other G7 currencies, despite the dollar finding it difficult to discover consistent traction vs. the EUR. Basically, it seems that if the Greek situation does eventually calm down, investors may not be as interested in owning hard assets. Last month the commodity managed to print its first monthly gain since Nov. European sovereign debt issues and a ballooning UK deficit with the potential of ‘hung’ parliament after the next general election has had investors seeking some sort of portfolio surety. Bears should be wary of Cbanks wanting to add the commodity to their reserves ($1,121).
The Nikkei closed at 10,567 down -18. The DAX index in Europe was at 5,849 down -25; the FTSE (UK) currently is 5,575 down -32. The early call for the open of key US indices is lower. The US 10-year backed up 2bp yesterday (3.70%) and is little changed in the O/N session. 10-year notes fell, pushing the yield to its highest level this month on concerns that the US government will struggle to find buyers for its product this week. Sarkozy stating that the Euro-Zone will help Greece had investors temporarily reducing their demand for surety assets. Better than expected employment report makes one ponder the thought that the Fed’s exit path may be shortening. With the world a safer place, supposedly, has given dealers an excuse to liquidate more of their positions to allow them to take down supply this week (3’s $30b, 10’s $21b and 30-years $13b).
The euro pulled back from a two-month low against the dollar today on news that Abu Dhabi would back debt incurred by Dubai World, reducing fears that some of Europe’s largest banks would be forced to write-off billion in loans.
“There’s huge relief because banks were on the hook,” said Jonathan Gencher, Toronto-based director of foreign- exchange sales at Bank of Montreal, Canada’s fourth-largest lender.
Bloomberg
In what is being described as a “candid” discussion with the nation’s banks, President Barack Obama made it clear that he expects banks to increase loans to small and medium-sized businesses. Citing the unprecedented level of support and direct infusion of billions of taxpayer dollars into the the banking system, Obama warned the banks to not only increase overall lending, but also to refrain from opposing new regulatory plans.
BBC News
US Retail Sales, import prices, inventories and UOM sentiment all point to ‘normalization of US monetary policy’, whether the Fed or the administration like it or not! Even with rates on hold in the front end, a steeper yield curve reflects the ‘diminishing demand from investors anticipating faster economic growth and inflation’. The million dollar question is when do we implement ‘the’ exit strategy? Abu Dhabi has resuscitated global equities this morning, by giving a $10b life line to Dubai World to meet its immediate debt obligations. This will obviously help European Banks, who fear of further reprisals being bestowed upon them and giving once again temporary relief to the USD ‘bear’ this morning. The Tankan business sentiment amongst Japan’s largest manufacturers did not live up to Friday’s UOM headline. It advanced the least (-24 vs. -33) as companies have become more concerned that the JPY’s gains will erode future profits. This is the exact problem that the inexperienced Hatoyama’s Government is trying to overcome! Playing with the USD temporary strength by staying cautious seems a reasonable strategy at the moment.
The US$ is weaker in the O/N trading session. Currently it is lower against 10 of the 16 most actively traded currencies in a ‘subdued, yet illiquid’ trading range.
Friday’s US data was the impetus for a wild ride in the currency markets. US Retail sales beat all analysts’ expectations. Many believe that the headline print (+1.3% vs. +0.6%) states that the US consumer is more resilient than we have been giving them credit for! However, digging deeper, the data may actually be telling a different story. Firstly and historically, most of the gain was due to gas station sales which as we all know can be rather volatile in nature. Secondly, the prospects for immediate ‘future’ growth remain somewhat suspect, as salaries and disposable incomes have been moderating. Before, personal incomes relied heavily on government incentives and benefits. Thirdly, and rather significantly, holiday shopping seems to have drifted to Nov. to take advantage of the deeper thanksgiving discounts. For this reason alone, it would not be surprising to see a weaker print this month! Let’s not be too negative on the release. Can the printed growth be sustainable? What ever way you want to analyze it, consumers seem to be much stronger ‘this’ holiday season than ‘last’. Breaking the numbers down, the headline sales jumped +1.3%, m/m, and coming in at a much stronger print than last year’s -2.6% decline. In addition, while gas stations sales soared +6.0%, m/m, accounting for much of the surprise in the headline, ex-gas sales, total sales were still up a healthy +0.8%. Core-sales (ex-motor vehicles), rose slightly less than headline sales at +1.2%, as motor vehicles increased a further +1.6%, m/m. The retails sales data was backed up by the UOM consumer sentiment index, which advanced for the first time in three months on Friday (+73.4 vs. +67.4). Confidence once again is on the upswing, probably due to the fact that job cuts may now be slowing down. Stronger improved sentiment is a catalyst for supporting US retail sales and this alone may enforce the sustainability as we head into the first quarter of 2010.
The USD$ is currently lower against the EUR +0.24%, CHF +0.26%, JPY +0.36% and higher against GBP -0.14%. The commodity currencies are slightly weaker this morning, CAD -0.12% and AUD -0.10%. On Friday, Canadian new home prices rose less than expected in Oct. (+0.3% vs. +0.5%), but still increased for a 4-consecutive month. Digging deeper, the gains were in the house-only component which feeds into the replacement component of CPI. On a year-over-year basis, new home prices are still in negative territory! The loonie had been rapped on the knuckles last week and sits in the same boat as other growth and commodity currencies. The CAD is currently trading at the bottom of its recent tight range and in danger of losing further support at the USD is threatening to end the year on a high note. Last week the BOC shot a warning shot across the bow of the Canadian consumer. They said that recent rallies in equities and bonds may not be justified, and ‘that rising debt levels of Canadian households will make them more vulnerable when interest rates rise’. Carney said that ‘households need to asses their ability to service these debt obligations over their entire maturity’. Despite the BOC extending its commitment to keep borrowing cost low until well into next year, variable mortgage rate holders should be wary of a hike in long term yields despite the BOC’ remaining on hold. Expect liquidity to become a concern across the board as we close in on the holiday season. Again investors continue to be a comfortable buyer of the greenback on pull backs.
AUD managed to pare some of the sessions earlier losses after the Dubai Government indicated that Abu Dhabi was preparing to bank roll $10b of working Capital to help Dubai World meet its debt obligations. The AUD came under renewed pressure earlier in the session on speculation that the Fed may be moving closer to increasing borrowing costs after both Friday’s retail sales and consumer confidence headlines exceeded expectations. Despite growth currencies get a shot in the arm, capital markets remains focused on the US yield story. For now and until proven otherwise investors continue to be better buyers on dips. When will we see parity, first half of next year? (0.9120) or do we expect US rates to change the whole landscape sooner than we think?
Crude is lower in the O/N session ($69.48 down -39c). On Friday, Crude plummeted for an 8th consecutive day (the longest stretch in 6-years), as the dollar advanced vs. most its major trading partners, temporarily curbing investor appetite for commodities. Technically we managed to break down a significant support level, the $70 barrier. Will we be able to maintain the bearish momentum? Prices have dropped -11% this month on the greenback’s strength and rising fuel inventories. In the bigger picture, if the USD continues its month end buying, expect speculators to shy away from commodities. Last weeks’ EIA report showed that inventories climbed after refiners boosted their operations and imports fell. Oil stocks declined -3.82m barrels to +336.1m million last week vs. the market expectations of a gain of +600k barrels. On the flip side, gas stocks climbed more than forecasted and supplies of distillate fuel (heating oil and diesel) advanced for the first time in a month. Technically the report was a zero-sum game. Gas inventories rose +2.25m barrels to +216.3m vs. an expected increase of +1.6m, while distillate fuel increased +1.62m barrels to +167.3m. Refineries operated at 81.1% of capacity, up +1.4% points from last week and now at the highest level in 2-months. Two reason contribute to this, firstly, refiners anticipate greater future demand and secondly, the need to reduce stock before the end of the year because of tax consideration. Overall it was a modestly bearish report. Fundamentals continue to promote demand destruction. Various OPEC members have been rather vocal of late ahead of their meeting at the end of the month. They believe that prices are in ‘the right range and there is no need to reduce inventories’. Expect the USD’s direction to dictate price action medium term. Cannot say it loud enough, but support levels continue to look vulnerable!
Friday’s bargain hunting appeared after gold futures had plummeted. Over the last five trading sessions the ‘yellow metal’ has managed to fall close to a $107 drop from this month’s highs. The recent record rally required a healthy ‘lemming purge’ which we have just witnessed. Sellers beware, despite the ‘mother in-law’ and anyone who can, does own this ‘hot’ commodity, these pull backs remain strong buying opportunities as it’s ‘the international currency’ ($1,124). There has been a big pickup in demand seen in US physical gold and silver products last week even as prices were tumbling!
The Nikkei closed at 10,105 down -2. The DAX index in Europe was at 5,816 +60; the FTSE (UK) currently is 5,314 up +53. The early call for the open of key US indices is higher. The US 10-year bond backed up 2bp on Friday (3.52%) and are little changed in the O/N session. Stronger US retail sales and consumer confidence data again pressurized the longer end of the yield curve. 10-year product broke significant support levels at 3.50% and technically yields are in danger of approaching the 3.70-75% level as investors ‘want’ to believe that the US economy has truly turned the corner. Last week we witnessed the 2’s-30 spread widen out to 374bp, the most in nearly three decades. A steeper yield curve reflects the ‘diminishing demand from investors anticipating faster economic growth and inflation’. Are investors beginning to have their fill of US debt? Two possible reasons for the lack of interest, duration extending and secondly, the possibility of higher future rates.
Cyber Monday took the sting out of Dubai World’s troubles in the North America trading session yesterday. Internet traffic congestion spawned investor apathy. Action, for a second consecutive session, has been left up to the Asian markets. Dubai World has announced a restructuring plan involving ‘only’ $26b in debt. This lesser number has reduced ‘some’ of the panic that has built up after the Dubai government said it was not responsible for their debts. Golden rule, creditors beware! Trumping all this, the BOJ announced at an emergency meeting that they are to set aside $115b in emergency credit to aid PM Hatoyama’s fight against deflation. After going through the charade of an emergency meeting, the market should be disappointed with the BOJ’s solution. At the very least dealers would have expected them to buy JGB’s. Go JPY Go!
The US$ is weaker in the O/N trading session. Currently it is lower against 12 of the 16 most actively traded currencies in a ‘volatile and illiquid’ trading range.
Quelle surprise! Chicago PMI flatfooted most analysts predictions yesterday. It advanced to 56.1 (the highest level in 15-months) vs. market expectations of 54.2 as orders climbed (62.8-highest level in 2-years) signaling growth potential for 2010. Reality thus far shows us that increased sales have been heavily influenced by the Obama administration incentive programs and growing foreign demand. This has resulted in drawdowns to inventory levels in the US (the scourge of this recession) that should boost future production and promote sustainable growth. On the flip side, job losses and the fear of losing one’s job will continue to curtail consumer spending. That’s why the Fed needs to promote low interest rates for an ‘extended’ period of time. They walk a fine line as Cbanks are in danger of creating new asset bubbles if they mis-time hiking rates! This Friday’s NFP will surprise, analysts and dealers continue to revise their numbers to ‘less bad is good’, and consensus is predicting a loss of 120k.
Phew! China keeps on growing so we are led to believe. Last night, the official government PMI (55.2) and HSBC’s index (seasonally adjusted 55.7) managed to print an 18-month and 5-year high respectively. Again it’s strong evidence that Chinese manufacturing continues to lead Asia out of this economic slump. Our designated ‘white’ knight is showing no signs of cooling as ‘rising new orders and production, plus export orders will generate new jobs’. Premier Wen is committing his government to ‘moderately loose’ monetary policy and at the same time ignoring Trichet’s and Obama’s calls to let the Yuan strengthen. The currency being pegged to the weakly USD goes someway in protecting their exporters from slumping global demand. It’s a sure-fire sign that all the growth action occurs over there!
Now that’s how you make a currency move like the old Bundesbank days. Bully the market without actually spending anything. The BOJ last night called for an ‘extraordinary’ meeting after the JPY managed to slip to a 14-year low on Friday. Perception and controlling your own domain is everything! The JPY fell to a seven week low on speculation that Japanese policy makers would limit the currency’s future gains and step up quantitative easing. The move also happened to drag the Nikki higher. Last month the new Japanese government called on the BOJ to prop up growth since declaring the economy was in deflation. BOJ Governor Shirakawa has pledged to act ‘promptly and decisively’, but alas, similar to other CBankers, with O/N lending rates so low (+0.1%) and already purchasing government and corporate debt he has little room to maneuver. Technically, with USD/JPY under 85 the market should expect the MOF to intervene directly, however without the BOJ absorbing JPY from the market the desired weakness will only be a temporary 2 or 3 yen before the currency commences its upward trend. It would not be surprising to see the currency at sub 80 USD/JPY. Now, that would bring back memories!
The USD$ is currently lower against the EUR +0.18%, GBP +0.16%, CHF +0.19% and higher against JPY -0.75%. The commodity currencies are mixed this morning, CAD +0.38% and AUD -0.10%. Officially Canada grew in the 3rd Q. GDP was less than expected at +0.4%, y/y. But it was the first sign of growth in four quarters and maybe signaling the end of the worst recession in 50-years. Certainly not without it problems, the government expects to be running a deficit close to $55b, BOC’s Governor Carney will keep rates low for an ‘extended period of time’ (where have we heard that before!) and all in the effort to promote growth and boost employment. The headline print was lower than Governor Carney’s prediction for +2% annualized growth. Last month he managed to prepare the markets for any surprises by stating that growth may come in ‘softer’ than their predictions. The loonie is threatening to burst out of it tight trading range as commodity prices stabilize after last week’s collapse on the back of weaker global equities. The 3c trading range is in danger of being breached. Lack of liquidity, but no lack of direction has caused currency markets to be rather volatile. Dealers and investors can assume more of the same today as we have a busy US data day.
Three in a row and are we are still counting? The RBA came and delivered, but hinted of ‘no’ further threats to raising future rates earlier this morning. Governor Stevens hiked rates 25bps to +3.75% as compounding fundamental evidence reveals an economy gaining strength. Buying the rumor and selling the fact was evident after the Governor signaled that he may now pause, stating that the board’s ‘material adjustments to borrowing costs are enough to keep inflation within policy makers 2-3% target range’. Rising consumer confidence, higher house prices and China’s demand for commodities continues to drive the ‘new upswing in the economy that will last several years’. On the face of it, the RBA statement is very bullish in respect to other Cbanks, but at the same time distancing them from any aggressive tightening cycle. The currency and commodities will continue to go hand in hand (0.9160).
Crude is lower in the O/N session ($77.12 down -16c). Crude prices advanced yesterday after positive reassurance from U.A.E’s Cbank on Dubai Worlds woes and stronger fundamental data out of the US gave the commodity support. Crude continues to trade within its tight range despite oil fundamentals not supporting the underlying product. Elevated prices are not supported by last weeks EIA report which showed that inventories managed to advance to a new 4-week high. Demand destruction is alive and kicking! The report met with analyst’s expectations as stocks rose less than expected as imports gained. Inventories advanced by +1m barrels to +337.8m vs. market expectation of a +1.2m gain. On the face of it, the build up was consistent with the weekly API report, where inventories advanced +3.3m barrels as imports also rose. Analysts said that daily imports added +371k barrels a day as imports and the Gulf of Mexico output rebounded from the disruptions caused by ‘Ida’. Gas inventories advanced +1m barrels to +210.1m, w/w, vs. market expectations of only +300k. Distillates stocks (those that include heating oil and diesel) declined by -500k vs. expectations of -100k. Refinery utilization managed to advance +0.9% to 80.3% of capacity, vs. analyst forecasts of only +0.3%. Repeatedly over the last few weeks the $80 handle remains a stubborn resistance point, again the market attempted and again it has failed.
RSI levels for gold indicate that the current market is over bought, however investors anticipate an assault on the $1,200 this week. We have experienced wild gyrations of $20-$30 price swings over the past few trading sessions. To witness some month end profit taking yesterday is certainly not out of the norm. Year-to-data, the yellow metal has gained +37% as investors and central banks increased their holdings of the commodity to preserve wealth. The commodity remains a strong psychological store of value and an asset for expression for ‘no’ confidence by investors. Last week’s Dubai Worlds jitters required some aggressive selling for investors to raise potential capital for margin purposes. Despite all this, demand remains robust on any pull backs ($1,182).
The Nikkei closed at 9,572 up +226. The DAX index in Europe was at 5,653 up +28; the FTSE (UK) currently is 5,234 up +44. The early call for the open of key US indices is higher. The US 10-year bond backed up 2bp yesterday (3.23%) and are little changed in the O/N session. Stronger fundamental data out of the US, coupled with assurance from U.A.E’s Cbank that they would back lenders as they face losses from Dubai World’s possible default briefly pressurized the ‘surety aspect’ of the FI asset class. A plethora of debt was consumed in last week US auctions despite yields being close to record lows. Now that month end index extensions are out of the way, where to from here? It will probably take a few days for investors to comprehend the potential knock on effect from Dubai World’s intentions. Next week we have another round of treasury auctions (3’s, 10’s and 30’s-$40b, $20b and $12b respectively), but for the remainder of this week we have to get through ECB rate announcement and North American employment data.
Abu Dhabi – Dubai’s largest stock market – lost a record 8.3 percent after Dubai’s finance minister, Abdulrahman al-Saleh, said that the government will not cover Dubai World’s mounting debts. According to BBC Middle East Reporter Ben Thompson, this statement is somewhat at odds with the commonly-held belief from many who invested in Dubai World, believing that the Dubai government would guarantee them.
BBC News
While giving thanks yesterday, North American consumers watched world equity indices plunge into a ‘sea of red’ as Dubai World’s demand to restructure their debt repayments shook global investor confidence. This morning the rest of North American markets will be playing catch up. Dubai is the emerging markets showpiece. It has been the recipient of a huge global liquidity boom and now is on the cusp of defaulting! Is this the start of something contagious that will spread virally throughout the emerging and global markets? No matter, consumer confidence is rattled, and it makes sense why USD debt auctions have been well received near record low yields.
The US$ is stronger in the O/N trading session. Currently it is higher against 15 of the 16 most actively traded currencies in another ‘whippy and illiquid’ trading range.
The million dollar question is of course will Dubai World’s impending collapse be the impetus to push global equities over the edge? Or will the investor be able to isolate this as just another ‘storm in a tea cup’? Berating the ‘overvalued’ equities lower will lead us down the path towards global protectionism. This will only push the ‘reserve currency’ higher and question the sustainability of the lemming ‘carry-trade strategy’ that has earned various investors close to 20% this year. In reality we are experiencing the unexpected, analysts and dealers are now trying to gage the spill-over effect into other markets, who is owed what, how the knock on effect will affect creditors. British banks are reportedly the largest lender to the region and most of them are on their knees! Crowded trades will be pared back aggressively as we head into the most illiquid of trading times. We have witnessed that this morning with gold plummeting over $30. Dollar bulls will lead the way, but do not mention the un-winding of carry trades, the market cannot handle that just yet!
The USD$ is currently higher against the EUR -0.97%, GBP -0.98%, CHF -1.07% and JPY +0.34%. The commodity currencies are weaker this morning, CAD -1.06% and AUD -1.74%. The loonie is threatening to burst out of it tight trading range as commodity prices collapse on the back of weaker global equities. Earlier this week the CBR (Russia) indicated that they would be adding the CAD to their required reserves and by default liquidating some of the USD exposure supported the currency, but after the Dubai debacle, that is but a distant memory. In theory, the Russian Cbank wants to increase its ‘gold holdings and promote regional currencies in trade and finance to reduce risks posed by the US dollar’s dominance’. Rumors of other Cbanks like India again expressing their willingness to add more gold will eventually provide a bid to growth currencies. However, in this market it’s not the time for it! Dubai World’s desire to re-negotiate their debt payment schedules has pushed risk aversion trading strategies to the fore. The 3c trading range is in danger of being breached. Lack of liquidity, but no lack of direction has caused currency markets to be rather volatile. Dealers and investors can assume more of the same today in this holiday shortened week.
The AUD had its largest loss in over a month in last night’s session, as investors gravitated towards the JPY as Dubai World shakes investor confidence as its proposes to delay debt payments risking triggering the biggest sovereign default ever. Risk aversion trading strategies are dominating the currency market at the moment. Earlier this month, the RBA minutes implied that three straight lending rate increases may not be on the cards had futures traders unwinding some of their bets that Governor Stevens would tighten monetary policy again in two-weeks. He said that the pace of further rate increases ‘remained an open question’. With commodity prices temporarily in trouble, dealers are looking to sell AUD on upticks (0.9012).
Crude is lower in the O/N session ($74.00 down -396c). Finally, someone is taking fundamental crude data into consideration when they are pricing the black-stuff. Oil managed to pare this week’s entire advance. Elevated prices are not supported by the EIA report which showed that inventories managed to advance to a new 4-week high. Demand destruction is alive and kicking, coupled with the Dollar Index advancing on investor risk aversion, crude is on course again to test new lows. Last week’s EIA report met with analysts expectations. Crude stocks rose less than expected as imports gained. Inventories advanced by +1m barrels to +337.8m vs. market expectation of a +1.2m gain. On the face of it, the build up was consistent with Tuesday’s API report, where inventories advanced +3.3m barrels as imports also rose. Analysts said that daily imports added +371k barrels a day as imports and the Gulf of Mexico output rebounded from the disruptions caused by ‘Ida’. Gas inventories advanced +1m barrels to +210.1m, w/w, vs. market expectations of only +300k. Distillates stocks (those that include heating oil and diesel) declined by -500k vs. expectations of -100k. Refinery utilization managed to advance +0.9% to 80.3% of capacity, vs. analyst forecasts of only +0.3%. Repeatedly over the last few weeks the $80 handle remains a stubborn resistance point, again the market attempted and again it has failed. However, demand destruction does not warrant elevated prices, perhaps the $80 a barrels will be the top for the remainder of this year.
There is nothing like a bullish rumor to add spice to the record price saga that the ‘yellow metal’ has been experiencing. It’s no surprise to witness gold jump to new record highs this week on rumors that India may want to add, once again, bullion to their reserves. Year-to-data, the yellow metal has gained +36% as investors and central banks increased their holdings of the commodity to preserve wealth. Also last week, Sri Lanka and Mauritius publicly added the yellow metal to their reserves. However, this morning during the London session the yellow metal has managed to grind out it largest loss in nearly a year as the gain in the dollar has damped demand for the precious metal as an alternative asset. This morning the commodity is testing strong support levels ($1,157).
The Nikkei closed at 9,081 down -301. The DAX index in Europe was at 5,609 down -5; the FTSE (UK) currently is 5,179 down -15. The early call for the open of key US indices is lower. The US 10-year bond eased 8bp yesterday (3.19%) and are little changed in the O/N session. This week’s $118b debt auctions were again well received, despite being issued near new record lows. All three auctions surpassed market expectation of demand as indirect bidders, usually Cbanks, took close to 60% of the entire product. The market remains better bid on Dubai World’s threat of potential default to its creditors. Emerging market stumbling has sent shock waves through all asset classes as investors seek surety of fund investments. Finally, the ‘seasonal’s’ are calling for a flattening rally ahead of ‘month end index extension’ next week. It’s too painful to be the contrarian in this environment!
Powered by Efacilitators Hosting