CURRENCY CIRCUIT BREAKERS

Monday's stock market rally developed after the analyst that taunted financial bears on the way down picked Goldman Sachs up by the nose ring instilling confidence across the sector. Meredith Whitney, who quit her day job to set up her own financial boutique advisory after sharing her bearish views on super-sized losses across the nation's investment bankers, pointed to the sweet spot Goldman Sachs is in as underwriter and advisor to the world's governments. The theory is that Goldman will benefit from what she calls the "tsunami of debt issuance" to restore balanced budgets in the aftermath of the financial meltdown.

It was otherwise hard to see from where a rally might come, with Asian and European stocks both feeling distinctly listless to begin the week. The dollar started the morning on a rampage and jumped against most currencies including the Japanese yen. Meanwhile the bond market held its own with 10-year note yields starting off at around 3.3%.
 
Commodity traders continued to bail out the ship as energy prices were the first to suffer. August crude oil futures fell to $58.32 and an eight week low. Natural gas prices put in a fresh contract low before rallying and are trading above Monday's open in the overnight session. We can count 13 straight lower lows on the heating oil chart. Energy of course is the arbiter of choice when it comes down to taking the global pulse.
 
Copper prices also added gently as the rally in the S&P 500 index got underway and as energy prices began their reversal, the dollar started to lose its safe haven bid. A mid-morning report from Canada's central bank showed surprising business optimism at the highest in a decade over prospects for sales. That helped lift the local dollar to its highest in seven sessions as traders quickly tried to buy back short positions built up during the last month - according to data, the Canadian dollar has suffered from six successive weekly losses now. And so a break to the upside could quickly gather momentum as impatient investors throw in the towel to cover their short positions.
 
The net number of optimistic executives at companies surveyed by the Bank of Canada in its Business Outlook Survey was 38% - the largest gap since 1999 data shows. The survey asks for a 12-month view of sales. Another survey of loan officers showed that although credit conditions were still uncomfortably tight, they were far less so than at the time of April's reading.
 
The currency market continued to display signs of breaking the current evident in the rising dollar last week during fears of a weakening recovery. The British pound having got off on the wrong foot rebounded from $1.60 against the dollar despite stories of resurging losses out of a leading bank. The Japanese yen, immersed in political turmoil following a local weekend election loss for the ruling government that forced the Prime Minister to expedite plans for a national election, rose early in the session. It later pared gains against the dollar as the world suddenly seemed a safer place.
 
One upshot that might continue throughout the week if stock markets maintain an upward bias is that bond markets might lose some of their steam. Yields on the 10-year U.S. note rose Monday as fear for the recovery waned. Another interesting trade to observe will be the plight of gold in the face of a weaker dollar and rising budget deficits.

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