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

“The U.S. Treasury market is the world’s largest government bond market. Our foreign exchange reserves are huge, so you can imagine that the U.S. Treasury market is an important one to us,” Yi Gang, head of the State Administration of Foreign Exchange (SAFE), told a news conference.

Noting that China does not use its estimated $2.4 trillion in foreign exchange reserves for short-term speculation, Yi poured cold water over adding more gold to China’s reserves.

“It is, in fact, impossible for gold to become a major investment channel for China’s foreign exchange reserves. I have 1,000 tonnes now, and even if I doubled that holding, according to current prices, that would be about $30 billion,” Yi said.

Source: Reuters

Source: Reuters

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

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).

Source: Reuters

This new-found confidence has helped push emerging-market stocks to a six-week high. Commodities have also rebounded with a corresponding increase in the currencies of those nations exporting oil and metals.

“You have this positive political momentum to support Greece,” said Michael Ganske, head of emerging-market research at Commerzbank AG in London. “Investors are also watching what’s going on in Dubai, but it’s not a dramatic situation.”

Source: Bloomberg

Strauss-Kahn’s comments came following a meeting between Greek Prime Minister George Papandreou and French president Nicolas Sarkozy. Sarkozy – following German Chancellor Angela Merkel’s lead last week – said that France stood “resolute” behind Greece, but did not offer specific monetary guarantees.

Source: BBC News

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

The US employment report was a pleasant surprise Friday, stronger than consensus (-36k vs. -75k). Is the better than expected outcome reflecting stronger fundamentals or a smaller than assumed weather impact? It is most likely a wee bit of both. Without the weather variable, we may have been looking at a positive number. It’s nice to see that the unemployment rate was unchanged (+9.7%) for a second consecutive month. Digging deeper, the average weekly hours for all workers fell just -0.1-hour to 33.8, while the average factory workweek fell -0.4-hours. Average hourly earnings for all workers edged up a smaller than expected +0.1% and the y/y held steady at +1.9%. There was a substantial increase in the number of workers employed part-time reversing much of the Jan. decline. Worth noting that the manufacturing sector managed to post a second positive print, the government sector again pared positions. Much has been written on the report, but Mar. numbers could bring in a positive print.

The USD$ is weaker against the EUR +0.27%, GBP +0.38%, CHF +0.28% and JPY +0.18%. The commodity currencies are also stronger this morning, CAD +0.13% and AUD +0.55%. The loonie managed to appreciate to its highest level in 2-months and capped a winning week after a stronger than expected NFP report. North American ‘growth’ is always bullish for this commodity driven currency. 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 BOC said that ‘inflation and economic output have been higher than policy makers expected’. But, also repeated to stand pat through June unless the ‘current inflation outlook shifts’. Governor Carneys rhetoric justifies the bull’s positions and has certainly caught some technical positions flatfooted. The trend remains your friend. expect better buying of the currency on USD rallies in the medium term.

The AUD rose to its strongest print in four weeks as demand for higher yielding assets increased after the Euro-zone signaled their support for Greece. It seems that risk is back on and in vogue ahead of the Australian employment report later this week. 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%. He also went on to say that the decision ‘indicated the economic figures outweighed concerns about global sovereign debt risks, which helped convince the RBA to stand pat last month’. The currency has advanced +42% vs. the USD in the past year, making it the best performer among the most-traded currencies. 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’. Now that risk is back on, expect better buying on pull backs (0.9114).

Crude is higher in the O/N session ($82.18 up +68c). The bulls are back in town. Crude surged higher on Friday after the surprisingly stronger than expected US employment report. Optimism that fuel demand will climb in the world’s biggest energy consuming country pushed the black-stuff higher. At one particular point after the NFP release the commodity managed to surge +2.3% higher, teasing technical analysts into justify their graphs pointing towards a $90 print. The market will want to witness a few elevated closes before buying into their theory, especially ahead of the OPEC meeting on Mar. 17th. 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. Now we return our attention back to Greece and the EU fallout.

The ‘yellow metal’ ended higher on the week and rallied again on Friday, on concerns that Greece and its sovereign debt woes boosted the buying of the metal as a hedge against currency volatility. By day’s end, with the dollar paring some of its EUR gains also provided some commodity based support. In Feb. 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 ($1,140).

The Nikkei closed at 10,585 up +216. The DAX index in Europe was at 5,874 down -3; the FTSE (UK) currently is 5,595 down -4. The early call for the open of key US indices is lower. The US 10-year backed up 8bp on Friday (3.68%) and is little changed in the O/N session. Treasury prices plummeted lower after the jobless report. Traders see the Fed’s exit path shortening after the surprising release that basically confirms that the US has side-stepped a depression. Also it seems that the ECB faith in Greece 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 main driver here was domestic demand for investment goods,” which was 10.0 percent stronger, UniCredit economist Alexander Koch said in reference to the jump in domestic orders.

Although the “temporary massive impulse from the inventory cycle and fiscal programs will inevitably moderate” later this year, “for the time being the tailwind remains ample,” he added.

Germany is recovering from its worst slump since World War II, with gross domestic product declining by 5.0 percent in 2009.

Source: AFP News