MARKETS

It appears that we were not alone in our enthusiasm for the theory at least in selling into the dollar rally on Monday. Commodity prices were lifted on Tuesday with spirits raised by a significant increase in Asian growth forecasts. All Asian currencies beat the dollar back down and the major currencies reversed their rocky start to the week with the euro notching a new peak for the year against the greenback.

The Fed managed to sell a bucket load of two-year notes without much problem, keeping the bond market steady through today's policy statement. Watch for the nodding-heads on CNBC to pick this one over like piranha fish and dwell on every nuance, subtle or otherwise.

In our current monthly issue of Global Resources Alert we extolled the virtues of Brazil and the surrounding Latin nations. Today Moody's rating agency raised its debt rating for Brazil's sovereign debt to top-off a nice day for Brazilian markets. Apart from the South African rand, the Brazilian real has outpaced any other emerging markets currency in its 28% year-to-date appreciation against the U.S. dollar. Its gain Tuesday was the largest in a month. The Bovespa stock index rose 1.2% and commodity prices, for which Brazil is abundantly well endowed, also rose sharply.

The welcome news that Asia's recovery is alive and well helped lift emerging markets including Mexico, where local companies exports 80% of their business to the United States. A rally for the peso for the first time in a week was aided by a rising price for crude oil. The peso now has a 2.1% gain for 2009 against the dollar. Prolonged discussions over resolving the fiscal crisis are only worse when considered against the backdrop of economic weakness. A respite for the economy delivering a return to investor appetite for market emergents takes the heat off Mexican assets.

The price of copper jumped as the dollar index slumped to reach a 14% decline after peaking in March when stock market aversion was the order of the day. Copper on the other hand has since jumped almost 70%. The assertion that Asian growth was expected to be stronger than earlier thought boosted copper prices particularly at this time when the dollar is in decline, given commodity prices typically act as a hedge against a weaker dollar. Meanwhile copper inventories held at warehouses monitored by the London Metals Exchange tipped down for the first time in 18 days helping alleviate some downwards price pressure.

Chinese customs data also showed that the net amount of crude oil imported into refineries on the mainland was the second greatest on record. Naturally many took this as a pretty reliable indication that energy and therefore manufacturing demand remains buoyant.

With the dollar's decline Tuesday came a fresh rally in gold. Although the euro made a fresh high, gold stalled within 1.2% of the March 2008 peak at $1,033.90 per ounce. Gold prices are now up 14% year-to-date. December gold closed 1.1% higher at $1,015.50 Tuesday.

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