Morning Wrap for Tuesday November 9, 2010

Risk Aversion - The USD, Yen, CHF, CAD, and gold are all up today as market players avoid the risk trade on continued concerns that European countries will struggle with budget deficits and after China signaled that it intended to implement capital flow restrictions of hot money into their economy. In Europe, the extra yield investors are demanding to hold debt from Portugal and Ireland has climbed to record levels over similar German debt putting added pressure on the Euro. The spread on 10 year bonds between Germany and Portugal is about 450 bps, Irish spreads have pushed past 550 bps, and Greek spreads have widen to over 900 bps. Greece was able to issue 390 million euros of six-month debt today but they had to pay 28 basis points more in yield compared with an October sale. The uncertainty is fueling the CHF over the Euro. In Asia, China’s State Administration of Foreign Exchange said today it would crack down on speculative “hot money” flowing into the country, according to a statement on the regulator’s website. China will force banks to hold more foreign exchange, strengthen auditing of overseas fund raising, and also regulate Chinese special-purpose vehicles overseas by tighten controls on equity investments by foreign companies in China. These measures are a response to the monetary stimulus by the Fed's QE 2.0 ahead of this week's G20 summit in Seoul. The chorus of criticism  toward the Fed's QE 2.0 has risen ahead of the G20 meeting making a possible resolution to the currency wars unlikely. Elsewhere, the NZD was under pressure on reports the U.S. had stopped importing kiwi-fruit vine on worries that an orchard could be infected with a virus. In Canada, the CAD moved slightly over parity this morning as competitive currency devaluations is fueling a rise in commodities. The CAD received a boost after Canadian new-home prices rose 0.2% in September which had slowed since the government ended temporary stimulus measures and Bank of Canada Governor Mark Carney warned about record high household debts.