Morning Wrap for Thursday November 4, 2010

Message From The Fed, We are Dovish and We Will Do More - The USD fell across the board in overnight trading as the rest of the world realizes what the Fed's actions will do to the world economy. Yesterday the Fed announced that they will buy $600 bln of Treasuries over the next 8 months. The total monthly purchase will be $110 bln of which $75 bln will come from yesterday's announcement and $35 bln per month from the rolling over of maturing mortgage securities, which was previously announced. The increase in the supply of USDs has triggered a run to risk, especially commodities. I find it unusual that the Fed said in its statement that it was compelled to act because “progress” toward the objectives of full employment and stable prices “has been disappointingly slow.” Nice cover Ben, when you know that you are going to be criticized fall back on the Fed's legal mandate for price stability and full employment. The truth is, QE will do NOTHING for the economy, what it will do is allow the banks to continue to make money so that some day they can actually write down all those toxic assets that they have on their books. Back to the markets, the Euro jumped to a nine-month high against the USD on the perception that the ECB will continue to withdraw its stimulus measures. Meanwhile, the GBP rallied over 1% to its highest level since January on a report that showed house prices erased almost half of the record drop posted the previous month, spurring speculation that the Bank of England will not have to join the Fed in increasing the amount of QE. In Asia, the USD was slightly lower against the Yen as traders remained on alert for possible Yen selling intervention by Japanese authorities. Last week the Bank of Japan moved up their monetary meeting to today in order to handle any possible fallout from the Fed's actions. In the South Pacific, the AUD blew past parity and the NZD shot up causing New Zealand Finance Minister Bill English to remark that "we're caught between the polices of the two giants, both of which puts some pressure on us, with the U.S. depreciating their currency and China not allowing their to appreciate as much as would suit us." In Canada, the CAD rose to a three week high close to parity, but not quite there, as the risk on trade triggered by the Fed's QE 2.0 is spurring demand for Canada's commodities. The CAD's advance has been tempered by the federal government decision to block BHP Billiton's bid for Potash Corp. of Saskatchewan.