The US$ is weaker in the O/N trading session. Currently it is lower against 13 of the 16 most actively traded currencies in another ‘subdued’ trading range.

In the US yesterday, both the nominal and real trade balances improved. The improvement in the price-controlled is what flows through to GDP and it should reverse the deteriorating trend that had been in place over the previous two-months. That being said, the nominal trade balance improved more than anticipated (+$37.3b vs. $-41b.). One notices that the dollar value of imports fell faster than the decline in exports. The drop in nominal exports was focused on the transportation sector. This sub-sector is highly volatile, as large monthly gains create ‘unsustainable base effects for the next month’. Surprisingly, other export categories produced considerable strength (telecom equipment climbed +6.4%, consumer goods were up +1.3% etc). It’s the decline in imports that concerns analysts the most. It was broadly based. Notably, only apparel (+1.6%), food and beverage (+1.7%) and services (+0.4%) were up. All other major categories of imports fell.

The claims and employment reports should be heading towards solid footing after the ‘blizzard induced spikes’ we witnessed last month. So it’s expected that US jobless claims will be able to report further improvement going forward. Yesterday’s US initial claims number revealed another weekly improvement (+462k) from the spike induced print of last month (+498k). By the end of Mar. we should be back to pre-blizzard reporting. This should provide a solid footing for the next NFP report. Again, distorted by weather conditions, we witnessed continuing claims push a tad higher (+4.558m vs. +4.521m). It’s important to note that the weekly print lags initial claims by one week. So, optimistically, we should see an improved print going forward. Finally, both extended (+163k vs. +178k) and emergency (+5.68m vs. +5.52m) fell last week. Analysts remain confident that they expect to see further improvements in these programs over the coming months.

The USD$ is weaker against the EUR +0.30%, GBP +0.36%, CHF +0.38% and JPY +0.03%. The commodity currencies are stronger this morning, CAD +0.07% and AUD +0.17%. Yesterday we saw evidence in Canada that potentially will put ‘upward’ pressure on core-inflation. Firstly, there was a rise in new house prices (+0.4%), and secondly, a faster than expected pace of industrial capacity’ (70.9% vs. +70%) in the Canadian economy. This is strong proof that Canada is moving away from an emergency rate setting (+0.25%). Trader’s opinions vary on the timing of a hike, consensus is probably July. However, both June and Sept. cannot be ignored. The BOC will certainly have its work cut out. All along they have been vocal on a stronger loonie effect on sustainable growth. Surely, with the currency flirting with parity, its value is doing a hiking job? The Canadian monthly rise in new house prices met expectations for the third-straight month or almost +5% annualized. It’s worth noting that the level of new house prices is only +1.3% away from the all-time record of two-years ago. The fourth Q capacity utilization climbed a percentage point higher than expected to +70.9%. That’s on top of a +1.3% upward revision to the previous quarter’s rate. The rate has climbed a whopping +3.2% points in six-months. Despite being below pre-crises levels, it continues to provide support for robust growth and an end to emergency interest rate policies. Canada’s trade picture continued to improve in Jan. (+$0.8b vs. +$0.2b). Exports rose while imports dipped for the first time in two-months. Digging deeper into the report, trade was weaker than the headline number implies, as all of the growth in exports was due to prices, with both export and import volumes down on the month. Despite remaining the darling of growth currencies and even with commodities prices ‘to and fro’ there is an appetite to own the currency as speculators gamble on these ‘growth’ prospects. For now, ahead of this morning employment report, the currency continues to congest vs. its southern partner. The trend remains your friend. Expect better buying of the domestic currency on USD rallies in the medium term. Record IMM long growth currency positions may put a spoke in the wheel.

In the O/N session the AUD traded near its seven-week high from Jan. vs. the dollar as traders bet ‘accelerating growth’ will prompt its RBA to increase interest rates. The weaker than expected Australian employment report (+0.4k vs. +15.2k) earlier this week only provided an opportunity for speculators to add to their positions. In Feb., the economy added the fewest jobs in six-months. Some have suggested that the RBA ‘has room to slow the pace of future interest-rate increases (+4%)’. The pause in the employment boom ‘may prompt some consumers to trim spending in coming months’. Of late, robust Chinese export numbers have had investors demanding higher yielding growth currencies. Expect Chinese policy tightening to eventually cool the demand for the AUD as a ‘first play’ growth currency, but until then, the trend remains your friend. 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%. The market expects the RBA to hike with a ‘gradual approach’. Continue to expect better buying on deeper pull backs (0.9178).

Crude is higher in the O/N session ($82.38 up +27c). Crude was little changed yesterday despite the initial sell off on speculation that China might have to implement various exit strategies after recording the highest inflation rates in 16-month. Their CPI print of +2.7% in Feb. increases pressure on the Government to somehow suppress inflation and probably growth. This week’s EIA reports are supporting the ‘bull’ technicals. The weekly report showed a decline in supplies of gas and distillate fuels. Gas stocks dropped -2.96m barrels to +229m vs. an expected ‘little change’ scenario. Distillate supplies (heating oil and diesel) decreased -2.22m barrels to +149.6m. It was expected that stockpiles were to fall by only -1m barrels. On the flip side, crude inventories rose +1.43m barrels to +343m vs. an expected climb of +2m barrels. An OPEC report this week stated that member states will need to produce more oil than previously estimated. It’s expected that the members need to be pumping +28.94m barrels a day to satisfy this years global demand. That’s an increase of +190k barrels a day over last year’s projections. OPEC meet next week to decide production quotas. Already member representatives say that ‘no new decision’ about production levels is expected at the meeting as ‘projected demand levels are still much less than OPEC’s current production’. This scenario will increase stockpiles. With momentum and an investor attitude that the economic situation will not get much worse should support commodities on pull-backs.

For a fourth-consecutive trading session this week the ‘yellow metal’ has struggled. It managed to print new weekly lows yesterday morning as the dollar tries to maintain its buoyancy vs. the EUR, thus reducing the demand for the metal as an alternative asset. Thus far this morning the dollar has struggled. Speculation of tightening monetary policies in China could add additional pressure to the commodity. Comments earlier this week, also from China, have managed to weigh on the commodity. Authorities indicated that ‘bullion probably will not be the country’s main reserve investment’. Technically that means they will ‘have to hold dollars’. It’s all about the performance of the dollar. Currently, any signs of weakness and we will have buyers happily entering the market. Until then, the bulls are the unlucky investors. Close to current levels, EU sovereign debt concerns have had investors seeking some sort of portfolio surety back in Feb. Will we see the same interest at these lower levels ($1,111)?

The Nikkei closed at 10,751 up +86. The DAX index in Europe was at 5,945 up +16; the FTSE (UK) currently is 5,621 up +5. The early call for the open of key US indices is lower. The US 10-year backed up 1bp yesterday (3.74%) and is little changed in the O/N session. The US yield curve, especially the long-end, has felt the pressure of supply, finally. The short end of the curve has been better bid despite the plethora of product this week. The appetite is been aided by Fed rhetoric stating that ‘low interest rates are likely to be needed for some time, as high unemployment lingers and inflation stays below target’. The 2’s/bonds spread managed to widen out to new-records ahead of the last auction of the week, the long bond ($13b). Yesterday’s 30-year auction was again well received. The bid-to-cover ratio was 2.89 compared with 2.36 in Feb. and 2.68 in Jan. The average has been 2.44 from the past 4-auctions. Indirect-bids (proxy for Cbanks) were +24%, compared with +28.5% in Feb. and +40.7% in Jan. The average was +38.4% for the last 4-auctions.

Source: Reuters

At the current rate, if projected over the entire year, America’s annual trade deficit would be $447.5 billion for 2010. This would be an increase of 68.9 billion, or 18.1 percent.

The growing trade deficit has become a considerable headache for the Obama administration which continues to level charges of currency manipulation against China. The yuan has been prevented from appreciating against the dollar for the past 18 months in a move intended to maintain China’s competitiveness on the global markets. Yesterday, China reported that its February exports rose by 45.7 percent compared to February 2009.

Source: Associated Press

With respect to employment, the report pointed to rising commodity prices as a net benefit to the country as well as a return to stability in the manufacturing sector, in particular, the auto industry.

Source: The Canadian Press

The US$ is weaker in the O/N trading session. Currently it is lower against 13 of the 16 most actively traded currencies in another ‘subdued’ trading range.

Finally there was some data to chew on yesterday. The US whole sale inventory, on the face of it, disappointed as a new all-time low on the wholesale inventory-to-sales ratio was achieved. Inventories unexpectedly fell (-0.2% vs. +0.2%). With the drop across all the sub-categories in nominal terms has analysts believing that it was due to a price-adjusted drop, which will end up being a drag on the US GDP for the 1st Q. On the other hand, sales continue to grow (+1.3%, m/m), broadly based, so probably not a ‘price distortion’. Both durable and non-durable goods accounted for the increase. As analysts note, recent reports suggest the ‘replenishment of depleted stockpiles will lift production in coming months’. These on-going efforts helped the US economy expand at +5.9% last quarter (the fastest pace in six-years).

Reports have shown that US mortgage foreclosure filings dropped for a second straight month in Feb., and produced the smallest increase in four years as housing-rescue efforts contained activity. The US housing market remains ‘vulnerable’ to set backs and continues to rely heavily on government intervention. This is an important indicator, if foreclosures keep dropping it will send a strong signal that ‘the market is on the path to recovery’.

The USD$ is weaker against the EUR +0.04%, GBP +0.14%, CHF +0.03% and JPY +0.03%. The commodity currencies are stronger this morning, CAD +0.16% and AUD +0.16%. Despite remaining the darling of growth currencies and even with commodities prices ‘to and fro’ there is an appetite to own the currency as speculators gamble on these ‘growth’ prospects. The currency continues to congest vs. its southern partner and certainly outperform on the crosses. Traders are waiting for today’s trade numbers and tomorrow’s all important Canadian employment report. Technically, the currency is on course to test the USD support levels close to 1.0200. Depending on this week’s data, the domestic currency may have the momentum to provide another parity onslaught where it should run into strong opposition. 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 communiqué was hawkish in nature, leading to somewhat predictable rate increases for the second-half of this year. The BOC must be concerned about the loonies’ strength of late. However, it has occurred in an orderly fashion and rapid appreciation for speculative reasons would have sent alarm bells ringing. The trend remains your friend. Expect better buying of the domestic currency on USD rallies in the medium term. Record IMM long growth currency positions may put a spoke in the wheel.

The AUD managed, at one point, in the O/N session to print a seven-week high, but backed off slightly on the back of the Australian employment report (+0.4k vs. +15.2k). In Feb., the economy added the fewest jobs in six-months, which suggests that the RBA ‘has room to slow the pace of future interest-rate increases (+4%)’. The pause in the employment boom ‘may prompt some consumers to trim spending in coming months’. Of late, robust Chinese export numbers have had investors demanding higher yielding growth currencies. Expect Chinese policy tightening to eventually cool the demand for the AUD as a ‘first play’ growth currency. 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 (0.9161).

Crude is lower in the O/N session ($82.02 down -7c). Crude bulls are wearing ‘diamonds’ this morning as the commodity maintains its upward momentum, setting its sights on old resistance targets. Yesterday’s weekly EIA reports are supporting the technicals. Mind you, a softer ‘buck’ is also aiding the black-stuff. The weekly report showed a decline in supplies of gas and distillate fuels. Gas stocks dropped -2.96m barrels to +229m vs. an expected ‘little change’ scenario. Distillate supplies (heating oil and diesel) decreased -2.22m barrels to +149.6m. It was expected that stockpiles were to fall by only -1m barrels. On the flip side, crude inventories rose +1.43m barrels to +343m vs. an expected climb of +2m barrels. An OPEC report yesterday stated that member states will need to produce more oil than previously estimated. It’s expected that the members need to be pumping +28.94m barrels a day to satisfy this years global demand. That’s an increase of +190k barrels a day over last year’s projections. OPEC meet next week to decide production quotas. Already member representatives say that ‘no new decision’ about production levels is expected at the meeting as ‘projected demand levels are still much less than OPEC’s current production’. This scenario will increase stockpiles. With momentum and an investor attitude that the economic situation will not get much worse will support commodities on pull-backs.

For a fourth-consecutive trading session this week the ‘yellow metal’ has struggled. It managed to print new weekly lows this morning as the dollar maintains its buoyancy vs. the EUR, thus reducing the demand for the metal as an alternative asset. Comments earlier this week from China have also managed to weigh on the commodity. Authorities indicated that ‘bullion probably will not be the country’s main reserve investment’. Technically that means they will ‘have to hold dollars’. As we wait for US Trade and claims data investors have been happily cashing in profits that were booked using other G7 currencies. Forgetting Greece, it’s all about the performance of the dollar. Currently, any signs of weakness and we will have buyers happily enter the market. Until then, the bulls are the unlucky investors. 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 had investors seeking some sort of portfolio surety back in Feb. Will we see the same interest at lower levels ($1,106)?

The Nikkei closed at 10,664 up +101. The DAX index in Europe was at 5,940 up +4; the FTSE (UK) currently is 5,635 down -5. The early call for the open of key US indices is lower. The US 10-year backed up 3bp yesterday (3.73%) and is little changed in the O/N session. The FI asset class felt the pressure from a somewhat buoyant equity market and US supply issues this week. The short end of the curve has been better bid despite the plethora of product. The appetite has been aided by Fed rhetoric stating that ‘low interest rates are likely to be needed for some time, as high unemployment lingers and inflation stays below target’. Yesterday’s 10-year auction ($21b) was well received. The bid-to-cover ratio was 3.45 compared with 2.67 in Feb. and 3.00 in Jan. The average has been 2.83 from the past 8-auctions. Indirect-bids (proxy for Cbanks) were +35%, compared with +33.2% in Feb. and +29% in Jan. The average was +42.3% for the last 8-auctions. Today we get to bring down the last of this week auctions, the long-bond ($13b).

The idea of stress testing, is to determine the impact a given set of circumstances could have on the nation’s banks. Last spring, the banks were required to conduct a series of stress tests that assumed the economy would contract by 6.9 percent, with no appreciable growth until 2011. A return to trending growth however, was not envisioned until late 2012. Under these dire conditions, unemployment was projected to jump to a full 12 percent of the workforce, an increase of more than 1.5 million people.

The stress test the FSA wants to use now, is based on the assumption that Britain’s Gross Domestic Product (GDP) will fall even more than last year’s projection – 8.1 percent compared to 6.9 percent. The employment outlook for the new round of testing has also been downgraded to 13.3 percent unemployment, representing 4.2 million unemployed. In truth, the conditions for this round of stress testing are more closely matched to those of the Great Depression of the 1930s than last year’s recession.

This could simply be the case of the FSA modeling and testing for the absolute worst-case scenario, and if that is the case, then kudos for thoroughness. On the other hand, if the FSA believes that it is even remotely possible for this level of carnage to be in play, then it may be time to think about limiting GBP exposure.

On the positive side, year-on-year manufacturing actually increased 0.2 percent. Based on this, some analysts attempted to downplay the report, suggesting January’s result was simple a “rogue” number in what has otherwise been a string of monthly increases.

“The only comforting feature with manufacturing is that all the surveys show the output trend to be positive, which gives us confidence that January’s official reading is a bit of a rogue number,” noted Investec economist Philip Shaw.

Source: BBC News

For the past 18 months, China has pegged the yen to the US dollar. For American consumers particularly, this means that the cost of goods imported from China have remained unchanged and this certainly contributed to the impressive gains experienced by China. Naturally, this has also increased China’s trade gap with the US, and is sure to elicit further calls from the Obama administration to allow the yuan to increase in value.

“The recovery seems to have gained legs and this will give China’s government more confidence to start revaluing the yuan,” said Ren Xianfang, an economist at IHS Global Insight in Beijing.

However, China’s central bank governor, Zhou Xiaochuan, said at the weekend that the government was “very cautious” about easing exchange rate controls because the global economic outlook was still uncertain.

Source: BBC News

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.

Surely with the EUR weakening -6% against the dollar this year and a Chinese Yuan rallying +6.2% benefits the European economy? Who is kidding whom? These are questions posed by former EU commissioner Romano Prodi. He believes the Greek problem ‘is completely over’. There are no other sovereign issues in Europe. Speculatively, everything has been blow out of proportion. One wishes that could hold true for the UK economy. Their ‘fragile’ scenario remains however, especially after this mornings plummeting manufacturing production data (-0.9% vs. -0.3%). It seems that Sterling has legs for one direction and that’s down. It’s only when the EU gains momentum can the UK economy find some traction. The general election supersedes everything at the moment. Their economy will provide enough political copy for fodder in the run-in.

The USD$ is stronger against the EUR -0.23%, GBP -0.48%, CHF -0.20% and JPY -0.25%. The commodity currencies are mixed this morning, CAD -0.04% and AUD +0.24%. The loonie remains the darling of currencies. Even with commodities weakening there is an appetite to own the currency as speculators gamble on ‘growth’ prospects. The currency continues to congest vs. its southern partner and certainly outperform on the crosses. Traders are waiting for tomorrow’s trade numbers and Friday’s employment report to solidify their market positioning. Technically, the currency is on course to test the USD support levels close to 1.0200. Depending on this week’s data, the domestic currency may have the momentum to provide another parity onslaught where it should run into strong opposition. 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 communiqué was hawkish in nature, leading to somewhat predictable rate increases for the second-half of this year. The BOC must b concerned about the loonies’ strength of late. However, it has occurred in an orderly fashion and rapid appreciation for speculative reasons would have sent alarm bells ringing. 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. There is speculation that this evening’s Australian employment report will again provide strong evidence that the RBA will require another rate hike next-month. Robust Chinese export numbers has investors demanding higher yielding growth currencies. To top all the support variables for the currency was the RBA’s deputy governor Lowe comments that growth will be likely at or above average for the next couple of years. 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 (0.9163).

Crude is lower in the O/N session ($81.37 down -12c). Crude was little changed yesterday, in fact another dull day of trading for the black-stuff, especially after last week’s late surge on the back of stronger than expected employment data. Traders are wary about this morning’s inventory report. Analysts expect another build in stocks, a sixth consecutive rise, on the back of imports edging up and refinery utilization remaining flat. Global optimism that fuel demand will climb in the world’s biggest energy consuming country has helped push the commodity to 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. OPEC meets next week and already the Saudi’s King Abdullah has said that they target $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%. The market is expecting the higher utilization rate to quickly ‘mop up excess supplies’. With momentum and an investor attitude that the economic situation will not get much worse will support commodities on pull-backs. Perhaps this morning weekly reports may surprise.

For a second consecutive trading session this week the ‘yellow metal’ has struggled. It managed to print new weekly lows as the dollar strengthened vs. the EUR, thus reducing the demand for the metal as an alternative asset. Comments from China also managed to weigh on the commodity. Authorities indicated that ‘bullion probably will not be the country’s main reserve investment’. Technically that means they will ‘have to hold dollars’. This action, by default, will weigh on all commodities. Earlier this week investors were happy to cash in on their profits that were booked using other G7 currencies. Forgetting Greece, it’s all about the performance of the dollar. Currently, any signs of weakness and we will have buyers happily enter the market. Until then, the bulls are the unlucky investors. 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 had investors seeking some sort of portfolio surety back in Feb. Will we see the same interest at lower levels ($1,125)?

The Nikkei closed at 10,563 down -4. The DAX index in Europe was at 5,895 up +10; the FTSE (UK) currently is 5,607 up +4. The early call for the open of key US indices is lower. The US 10-year eased 1bp yesterday (3.70%) and is little changed in the O/N session. There was a demand for bonds despite the plethora of product to be issued this week. The appetite was aided by the Chicago Fed Evans stating that ‘low interest rates are likely to be needed for some time, as high unemployment lingers and inflation stays below target’. We have contagion issues on one hand, questionable global growth and hyping policy maker’s rhetoric providing the tug-of-war for product. Until the market gets some concrete data to chew on, one can expect various asset classes to trade in ‘limbo’. Yesterday’s 3-year auction ($30b) was well received. The bid-to-cover ratio was 3.13 compared with 2.83 in Feb. and 2.98 in Jan. The average has been 2.89 from the past 10-auctions. Today we get to bring down 10’s ($21b) and tomorrow long-bonds ($13b).

Merkel, speaking to reporters in Luxembourg today before Greek Prime Minister George Papandreou meets President Barack Obama in Washington, said the European Union must take the lead in curbing the “very speculative elements” of derivatives trading, going beyond previous Group of 20 nations agreements. The U.S. must also be on board, she said.

“We’re of the opinion that a quick implementation of actions in the area of CDS has to happen,” Merkel said. Citing “ongoing speculation against euro-region countries,” she called for the “fastest possible” implementation of new rules. Europe must “do everything to avoid unhealthy speculation,” said Juncker, who heads the euro-area finance ministers group.

Bloomberg