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QE2 Speculation and US Dollar Dominate Pre-Market Price Action

|Includes: ADE, CUD, United States Commodity Index ETF (USCI)

Ongoing speculation surrounding the size and extent any forthcoming Fed quantitative easing is set to dominate price action across asset classes in US trade today, following a Wall Street Journal article suggesting the central bank will be announcing treasury purchases worth only a few billion dollars over several months; a less aggressive move than the market has been expecting. This has brought some renewed strength in the greenback during the session, and as a result equity and commodity futures have all been on the back foot in pre-market trade.

On the economic calendar today, US durable goods data and US Home Sales numbers are the only really noteworthy events lined up. Having previously shown a 1.3% fall and a 288,000 rise respectively, estimates for today’s numbers suggest both will show a rise as the economic outlook improves, but still remains comparatively weak.

The weekly US Department of Energy (DoE) oil inventory data is also due up at the normal time of 1030EST, and the Fed is also set to sell $35 billion in 5-year notes today.

Equity markets are set to open with a negative bias today, following on from their European counterparts overnight with some weak earnings results from big names such as Deutsche Bank, SAP and BBVA. The mining and basic materials sector is looking to lead losses however, with lower metals prices and a stronger dollar weighing on the sector before the open.

In corporate news, MySpace will be launching a fully revamped website today, in a move to reposition the company ahead of a decision on its future by owner News Corp.

On the US earnings calendar, Whirlpool have announced Q3 results in line with estimates before the bell this morning, with an earnings per share (NYSEARCA:EPS) of $2.22 compared with estimates of $2.23, a similar picture to Comcast, who reported adjusted Q3 EPS of $0.32 versus estimates of $0.30. Office Depot also announced in-line Q3 results, with an EPS of $0.03.

Results from Procter & Gamble and ConocoPhillips are also due for release today.

Sovereign and corporate credit spreads have been seeing a flat to mildly wider session in Europe today, with US spreads expected to go the same way on the back of weakness in the equity markets and some renewed risk aversion. This weakness has particularly been the case with European peripheries today, with Greece underperforming the sector; around 35 basis points (bps) wider against the benchmark 10-year bund. This European risk is also reflected in the FX market, as the euro continues to weaken against the US dollar.

As previously highlighted, the greenback is firmer across the board today, particularly against the Aussie-Dollar following weaker than expected Australian CPI data overnight at +0.7%. Even cable is showing weakness in the session on the back of QE2 speculation, although yesterday’s strong UK GDP numbers are helping to limit the losses somewhat. The euro-dollar saw additional weakness coming through in European trade today, after the European Central Bank (ECB) allotted €42.5 billion in its 3-month long-term refinancing operation (LTRO).

Treasuries are seeing some safe haven moves boost yields today, with the 5, 10 and 30-years all making fairly good gains following the Australian inflation data overnight. It also comes off the back of the strong 2-year auction yesterday, which saw the note at 0.4% yield, with a decent bid-to-cover ratio of 3.43 times. This now sets the path for a strong showing in today’s 5-year auction, where $35 billion is to be sold.

Disclosure: no positions