Stock and commodity markets continue to focus on the impact of weak global growth conditions and the EU debt crisis. The dollar moved back to its strongest levels in months benefitting from the Swiss currency peg, worries ahead of the 9/11 ten year anniversary and an European Central Bank more concerned about weak growth than inflation. Swiss currency floor Foreign exchange markets lit up this week with news that the Swiss National Bank all but made good on persistent rumours that it would peg the Swiss Franc to the Euro in order to halt the dramatic appreciation of the currency which had begun to hurt the Swiss economy. The line is now drawn at 1.20 versus the Euro at which level the SNB will buy Euros at whatever quantity required to hold the CHF. ..and the potential dollar/commodity impact This move could strengthen the dollar with the SNB likely wanting to buy other currencies than Euros, of which it currently holds 55 percent, in order to maintain a diversified mix of currencies in its reserves. With the dollar being the most liquid of the pack it could now have found a friendly central bank. Asian Central Banks have been selling dollars against Euros for months. All eyes will be on EUR/USD as a break of key levels would open the way for a substantial move higher. It will be interesting to follow from a commodity perspective as a stronger dollar removes some support for the asset class. The Reuters Jefferies CRB index lost one percent over the week with most commodities bar a few being in the red. Crude oil markets quickly found support this week after another sell off. The recovery was driven by a bounce in equity markets and hopes that President Obama’s job creation plan could stimulate growth. But more importantly near-term is the tightness in the spot market with the loss of Libyan oil continuing. We also have outages in Nigeria, Syria and the North Sea adding up to lower-than-expected production which so far has helped offset reduced demand caused by the economic slowdown. Further, producers in the Gulf of Mexico have had to evacuate workers once again ahead of Tropical Storm Nate which is expected to become the third hurricane this season. Cushing not spilling over During the week the spread between WTI and Brent crude reached a new record high of 27 dollars with most of the above supply issues impacting Brent more than WTI. One of the major reasons for this dislocation has been the belief that increasing storage levels at Cushing, the delivery hub for NYMEX WTI crude, would put downside pressure on prices. The chart below shows, however, that storage levels have been falling since May and currently stands at levels last seen in November 2010 - at which time the spread was trading below one dollar.

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