Watching these markets is confusing, even to the best. Some say we are in a bear equity market rally, witnessing moves that have been distorted by low volumes, other will obviously dispute. We are watching Crude hit 8-month highs, despite fundamental data stating that we are consuming less with Ã¢â‚¬Ëœdemand destructionÃ¢â‚¬â„¢ remaining strong. We have seen Cbanks dominate last weeks US treasury auctions, providing support for lower yields. Some believe we have seen the worst of the recession, we may have, but we will not know until we are out of it. We have exactly 6-months to prove that the Ã¢â‚¬Ëœgreen shootÃ¢â‚¬â„¢ economic theory is taking root, the psychological time line imposed by Governments marketing department. Obviously the most important variable to this successful equation is the consumer. The one thatÃ¢â‚¬â„¢s supposedly hoarding excess cash, the one that seeks employment, the one whoÃ¢â‚¬â„¢s net worth losses will take nearly a generation if not more to recoup, the one that suppose to make a difference within 6-month!

The US$ is weaker in the O/N trading session. Currently it is lower against 15 of the 16 most actively traded currencies in another Ã¢â‚¬ËœwhippyÃ¢â‚¬â„¢ illiquid trading range.

The USD move has been on Ã¢â‚¬ËœfumesÃ¢â‚¬â„¢, depth of both currency and equity markets are surprisingly small and should concern most investors about the nature of their conviction. Both month end and quarter end is creating some exaggerated directional moves for various asset classes. This is also a holiday shortened week with both the ECB and NFP to make trading even messier. Today will be dominated by the several month-end and half year-end fixings. Analysts believe that given the fact that the month-to-month change of the S&P 500 is below 1% they do not expect huge currency overlay in the North American session. Predictions for NFP range from -375k to -500k. This is a range that the market will interpret as somewhat bullish for the Ã¢â‚¬ËœgreenbackÃ¢â‚¬â„¢!

The USD$ currently is lower against the EUR +0.20%, GBP +0.71%, CHF +0.23% and JPY +0.48%. The commodity currencies are stronger this morning, CAD +0.27% and AUD +0.47%. The loonie remains in a tight range and is heading for a monthly loss ahead of this morningÃ¢â‚¬â„¢s Canadian GDP numbers. Some hedge funds are slowly paring their bets in this commodity uptick ahead of weekly inventory data tomorrow. ItÃ¢â‚¬â„¢s also a shortened trading week (Canada Day Tomorrow and US Holiday on Friday). It seems that liquidity remains at a premium. The loonie is down -6.2% since reaching a yearly high on the 1st day of the month. Governor Carney has been rather vocal about the currencies aggressive appreciation since March and the effects it is having on Canadian economic growth. The BOC last week said that CanadaÃ¢â‚¬â„¢s recession is as deep as their southern trading partners. They believe that Ã¢â‚¬ËœCanadian households are facing rising stresses because of increases in unemploymentÃ¢â‚¬â„¢, which will not be currency positive in the medium term. In the short term, expect speculators to be better buyers of USDÃ¢â‚¬â„¢s on deeper pull backs, unless we get a big surprise in the jobs data on Thursday!

The AUD found its Ã¢â‚¬Ëœsea legsÃ¢â‚¬â„¢ again and advanced against the USD in the O/N session. This quarter will be the best performance by the currency vs. its US counterpart in 14-years. Renewed optimism that the global slump is easing is providing support for most of the higher yielding assets (0.8132).

Crude is higher in the O/N session ($72.02 up +50c). Oil once again is hovering dangerously close to its 8-month highs on the back of Nigerian militants (MEND) again attacking another Royal Dutch Shell plant. Their actions are impeding production from AfricaÃ¢â‚¬â„¢s largest producer. Global demand destruction cannot support these elevated prices. The Ã¢â‚¬ËœbullsÃ¢â‚¬â„¢ currently own the direction of crude prices. But, underlying fundamentals do not support this play. The IEA lowered its 5-year forecasts for global crude demand because of the economic slump. They are cutting daily consumption levels by -3m bpd until 2013. Markets continue to see little evidence of an economic recovery in the weekly commodity reports. Last week the API reported that gas stockpiles increased to +211.4m barrels and crude supplies fell -72k barrels to +356.6m, while the weekly EIA announcement supported the API findings. Refineries are also operating at the highest rates this year (+87.1%) and fuel demand is off -5.5%, w/w (the biggest year-to-date). Demand destruction remains commodities greatest nemesis and not volatile currency levels. ItÃ¢â‚¬â„¢s now expected that OPEC in Sept. will not announce a further reduction in production, but, Ã¢â‚¬Ëœwill ask for more compliance with existing quotasÃ¢â‚¬â„¢ (to date members have a 77% compliance record with last years production cuts). This oil markets seem to be moving on Ã¢â‚¬Ëœfumes aloneÃ¢â‚¬â„¢ in a shortened trading week in the US. If the big dollar ever starts to find some traction, by default, should weigh on oil prices eventually! Over the next couple of months expect the market to focus on the US driving season that ends on US Labor Day. The Ã¢â‚¬Ëœyellow metalÃ¢â‚¬â„¢ managed to retreat yesterday on the back of the USD paring its losses and in some cases advancing against its largest trading partners, this morning with the USD under pressure itÃ¢â‚¬â„¢s gaining some support ($941).

The Nikkei closed 9,958 up +175. The DAX index in Europe was at 4,882 down -3; the FTSE (UK) currently is 4,285 down -9. The early call for the open of key US indices is higher. The 10-year TreasuryÃ¢â‚¬â„¢s eased 4bp yesterday (3.49%) and is little changed in the O/N session. Yields managed to touch their lowest level in a month yesterday on the back of the PBOC comments that China will stick with its foreign reserve policy for the time being. The flight to quality and USD based assets are occurring due to reports showing that economic growth remains weak. This is both month end and quarter end and the demand for product will be slightly exaggerated. The dilution of riskier assets will support treasuries on deeper pull backs in the medium term.

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