NFP figures were weaker than expected (nearly 600,000 jobs were lost) which prompted President Obama to urge Senate to pass the proposed Stimulus Package. He even threatened to waive their one week recess in order to get it before his February 16th deadline. The package is getting a haircut from the $900 Billion first proposed by the current administration and could be approved at $780 Billion early next week. New Bank Bailout guidelines will be announced by Treasury Secretary Tim Geithner on Tuesday, after being delayed to keep the Stimulus Package in the spotlight.
The US$ 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.
European data was weaker last week and keeps pointing to a deeper recession. Central Banks continue to utilize the tools available to them, be it Monetary Policy or rhetoric. The Bank of England cut rates to an all time low of 1.00%. The ECB held rates at 2.00% but signaled that it might cut rates in March if the current economic outlook continues. German industrial output decreased 4.6% in December and it has dropped 12% year to year.
The US$ currently is higher against the EUR -0.45%, GBP -0.14%, CHF -0.53% and lower against JPY 0.44%, The commodity currencies are lower this morning, CAD -0.65% and AUD -1.02%. The loonie depreciated after the Canadian announced Friday that the economy shed 129,000 jobs, the most in recorded history. Manufacturing was the sector that reported the most losses as the US has cut down demand for Canadian manufactured goods. The AUD (0.6586) has depreciated mostly out of the news that Japan’s inventories of raw materials keep accumulating and they will not need to purchase from Australia. Machine orders in Japan have decrease any demand from Australia’s main exports, leaving the currency under pressure at is could head to 0.6000 if buildup of inventories continues the same trend in China and Korea, Australia’s biggest trading partners along with Japan.
Crude is slightly higher O/N ($40.41 up 60c) after dropping below the $40 mark after the NFP announcement. Job losses in the US reduced demand for oil as one of the world’s biggest consumers of energy is cutting down on its spending. 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 ($907) has retreated after 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 7969 down 107. The DAX index in Europe was at 4,639 down 5; the FTSE (UK) currently is 4,282 down 9. The early call for the open of key US indices is lower. The 10-year Treasury yields backed up 10bp (2.99%). 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).
