G20, day one is for discussions, day two is for decisions. On a global perspective the market seems optimistic that something positive will come of this gathering thatÃ¢â‚¬â„¢s been disputed by violent protesting in London. Yesterday, we had nearly every nation taking a swipe at each other in an underhanded manner. If nothing else, it was a good photo op for some! It seems a forgone conclusion that Trichet and Co. will slash rates by 50bp to 1% this morning, but will they follow down the path of quantitative easing? I expect they will not announce anything of that nature but will reiterate that they will provide as much liquidity for as long as it is needed.



The US$ is mixed in the O/N trading session. Currently it is higher against 9 of the 16 most actively traded currencies, in a Ã¢â‚¬ËœwhippyÃ¢â‚¬â„¢ trading range.

Not a good sign that ADP employment fell more than expected in Mar. (-742k). This has pushed consensus for tomorrowÃ¢â‚¬â„¢s NFP to -700k, but certainly leaves the window open for a much higher number. The Challenger job cuts also surged over +180%, y/y last month all on the back of a labor market continuing to deteriorate coupled with a weaker economy. Analysts now predict that the unemployment rate will advance 4-ticks to +8.5%. Digging deeper one noticeÃ¢â‚¬â„¢s that small and medium-sized firms led the decline, shedding -284k and -330k workers, respectively, while larger firms cut a further -128k. The service-sector lost a further -415k workers while the goods-producing sector cut -327k workers, with manufacturing accounting for most of the decline at -206k. Construction employment also fell -118k as the housing sector continues to deteriorate.

A nice surprise was to see that ISM manufacturing index climbed a 3rd-consecutive month. Since Dec.Ã¢â‚¬â„¢s low of 32.9 the index at 36.3 is once again approaching break even. Proof that the pace of deterioration is slowing, however the manufacturing sector continues to contract at a good clip and one can expect this to be the norm for the medium term. Inventories the curse of this recession remains high and need to be worked off before production can increase again. New orders were the winner in Mar. rising to 41.2, with new export orders rising to 39.0. A surprise was to see employment move up 2 points (the 1st significant increase in nearly a year). However it has a long way to go yet!

US pending sales of existing homes raised a few eyebrows and a sigh of relief from some investors. The signing of contracts unexpectedly advanced in Feb. (+2.1% vs. -7.7%), perhaps proof that the housing slump, now in its 4th-year may be bottoming out. One can only assume that foreclosure have driven prices so low, coupled with lower mortgage rates has enticed more buyers and help trim the property glut. We just need this to be maintained.

The USD$ currently is lower against the EUR +0.17%, GBP +0.68% and higher against CHF -0.02% and JPY -0.44%. The commodity currencies are stronger this morning, CAD +0.48% and AUD +0.66%. Yesterday, the loonie continued to swim up stream as plummeting commodity prices dissuade investors to own the currency. With the auto industry perhaps going into bankruptcy protection will have an adverse effect on Canadian employment and manufacturing. The potential of any Canadian auto operation being closed will only heighten Canadian economic slowdown. GDP data already this week (-0.7% for Jan) virtually confirms that this 1st Q will probably be the worst in 50-years and provide ammo for BOC governor Carney to slash the benchmark O/N rate again by another 25bp later in the month (50bp). With monetary policy muted, it will force Carney to use non- conventional policies in the shape of quantitative easing. Due to the uncertain outcome of G20 events, look for investors to want to buy USD on any pull backs at the moment.

The AUD gained some traction last night for a number of reasons, global optimism, higher equities and commodity prices, but more importantly it advanced after its trade surplus (+1.5b vs. +$0.7b, m/m) widened which added to optimism that the worst of the world recession may be ending. Australians will receive further economic stimulus in next monthÃ¢â‚¬â„¢s budget (0.6900).

Crude is higher in the O/N session ($49.82 up +143c). Yesterday we saw that ample supply of crude continued to weigh heavily on the market. Crude prices fell after the weekly EIA report showed that US stock levels rose to a 15-year high as this global recession continues to curb demand. It was the 23rd gain in 27-weeks. Inventories climbed +2.84m barrels to +359.4m last week vs. an expected increase of +3m. More surprising was gas supplies, which unexpectedly rose by +2.23m barrels to +216.8m w/w. Global economic reports cannot even provide support, demand destruction continues to gain momentum. However, optimism about a positive G20 outcome has reversed most of yesterdayÃ¢â‚¬â„¢s losses in the O/N session. Crude prices have tumbled nearly 13% since the middle of last week, but remain 7% higher this Q after Geithner unveiled a plan to remove Ã¢â‚¬Ëœtoxic assetsÃ¢â‚¬â„¢ from banks. OPEC realizes that Ã¢â‚¬Ëœdemand remains slack and it is unlikely to reach $55-60 a barrel this yearÃ¢â‚¬â„¢. Fundamental data has been very bearish and warrants a further weakening of prices as demand destruction remains buoyant. Another bearish report that will certainly put OPEC and future production cuts back onto the dealing table when they meet next month. Gold was little changed yesterday ahead of todayÃ¢â‚¬â„¢s G20 meeting. Speculators remain concerned about the value of the USD. For now one should expect the Ã¢â‚¬Ëœyellow metalÃ¢â‚¬â„¢ to remain better bid on deeper pullbacks as the fear of inflation occurring on the back of the FedÃ¢â‚¬â„¢s plans to buy debt ($921). The G-20 is expected to ask the IMF to make proposals to use proceeds from planned gold sales to support poorer nations this week, this could cap gold prices however!

The Nikkei closed 8,719 up +367. The DAX index in Europe was at 4,277 up +146; the FTSE (UK) currently is 4,057 up +102. The early call for the open of key US indices is higher. The 10-year TreasuryÃ¢â‚¬â„¢s eased 1bp yesterday (2.69%) and are little changed in the O/N session. Treasury prices remain better bid on pull backs as the 4th-outright purchase of debt by the Fed yesterday ($6b of 2Ã¢â‚¬â„¢s and 3-year product) is helping to lower borrowing costs. All this occurred despite a positive equity market that received support from both the US housing and manufacturing data yesterday. Currently deeper recession fears is doing battle with US debt sales which are expected to triple this year to a record of $2.5t. There will come a time when no-one will need supply any more!

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