Standby for a run in commodity and sharemarkets as the US dollar falls, despite the the looming end-of-year period which is supposed to have resulted in renewed tension. But the good news can’t be sustained because of the slowing level of demand in the US, Asia (especially China) and Europe.

A sharemarket jump will depend on the progress of the $US14 billion bailout bill through the US Senate. It’s starting to look as though the Republicans will block the bill, despite it being supported by the President.

Both GM and Chrysler say they need the money within the next couple of weeks, or they could go into bankruptcy. Bloomberg reported today that some smaller suppliers to GM had started demanding payment ahead of normal.

If the Senate was to delay or frustrate the bill this weekend, then financial tensions will jump sharply next week, shutting off the gathering uptick in commodities. The easing in credit markets tensions internationally will stop and fears about the stability of some banks and other groups will be back on the agenda.

But so far the markets have ignored the progress of that bill. In the past four days, commodity markets have rebounded, with the main index, the CRB/Reuters Jeffries Index rising more than 10% to 230 point last night from around 208 at the close last Friday.

The US dollar has eased; falling through a seven week low support point of $US1.34 to the euro overnight: that was the lowest since October 20 in the wake of the currency’s rapid appreciation in the wake of the Lehman Brothers collapse which rattled markets globally.

Investors around the world charged into the dollar for safety, buying up US Treasury notes, driving down yields to record lows for anything from one month out to 10 years, and parking billions of dollars in cash at the Fed, forcing the market rate for cash to a fraction of the 1% of the federal Funds rate of the Federal Reserve. Last week we saw investors buying 1 and 3 month Treasury notes at auction and driving yields down to minus 0.05% and zero, such was the demand for liquid investments.

Oil and commodity prices plunged from October onwards as investors piled into US dollars: oil fell 40%, copper 50% at one stage and the price of agricultural and other metals were forced down to multi-year lows.

The cost of borrowing in dollars for three months in London fell to the lowest level in more than four years. The London interbank offered rate, (or Libor) fell 0.1% to 2%, the lowest it has been since September 2004. There doesn’t seem to be the fear there was even a couple of weeks ago, although that could change when the next reporting cycle starts for major banks in the next week or two.

But in the past few days there seems to have been a change in sentiment, highlighted by the market reaction to a surprise widening in the US trade deficit in October. That increase came despite the sharp fall in oil prices and the reaction of the markets was to sell the greenback and buy commodities. The Australian dollar, something of a proxy for commodity and resources, rose above 67 US cents today to around 67.15 US cents, for the first time in several weeks. That was its highest level for a month and a rise of 1.5 US cents in 12 hours on its Sydney close of 65.66.

Gold rose $US11.30 to $US820 an ounce, copper jumped almost 3% to $US1.50 a pound on the Comex futures market in the US: it was trading around $US1.37 a pound last week . And oil jumped 8.5%, or $US3.70 to $US47.22 a barrel.

The US sharemarket however was weak, with the recession, more job losses and the rising possibility that the car bail out bill could stall weighing on the bourse.

Meanwhile, Bank of America has revealed plans to slash up to 35,000 jobs after its merger with Merrill Lynch is complete.

Bank of America effectively rescued Merrill Lynch back in Mid September in the wake of the collapse of Lehman Brothers. Now the merger has been approved and Bank of America management told the market this morning that they plan to cut 30,000-35,000 jobs from the merged entity over the next three years. It was yet another job cut (the biggest so far disclosed in the US) on top of the 5,000 that Dow Chemical will get rid off and the thousands of others revealed by smaller groups this week.

But there was a sliver of good news in the US: home foreclosure filings dropped 7% from October to November, according RealtyTrac, the online group which tracks home foreclosures and sales.

The firm said November foreclosure filings fell to 259,085, down from October, but up 28% from November of 2007. A total of 78,179 families lost their homes during the month, down 8% from October when 84,868 homes were repossessed by lenders. A total of 1,014,618 homes have been lost to foreclosure since the housing crisis hit back in August 2007. But RealtyTrac executives said the fall was due more to the spread of cooling off periods among various states, such as California, and their introduction by Fannie Mae and Freddie Mac, the two big government owned mortgage groups. Other big banks are following.

These periods delay the inevitable and RealtyTrac says it expects a upturn in foreclosure filings from January and February onwards next year as the work out periods expire with no solution. The point to figures from the mortgage bankers industry group which showed that the number of homeowners who fell behind on their mortgages hit a record 6.99% in the third quarter, up from 5.59% a year ago. They become a potential foreclosure in coming months.

And locally, Goldman Sachs JBWere lowered their economic forecasts for Australia for next year, telling clients that the upturn, when it comes, will be slower than previously expected in 2010, but it will be led in an old fashioned way by a renewed surge in housing.

The firm’s US economists see global growth as being weaker than previously forecast and this has seen cuts in Australian forecasts as a consequence.

But Goldman Sachs economists say that Australia is better placed than most other countries withy a functioning banking system and easing financial pressures which will help “underpin the recovery” in the next year to 18 months. The firm points to rising investment in housing as the catalyst to lead the recovery, followed by improving consumer spending. That’s why those home loan approval figures were significant this week: if that sort of growth is sustained, it will take some of the sting out of the domestic slowdown next year.