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In This Issue..
* US consumer confidence on the rise...
* Improved labor markets could bring higher US rates...
* Norway has a good day...
* Frank heads to Vancouver and begins his blog...
And Now... Today's Pfennig!
US consumer confidence on the rise...
Good day, the last day of March is finally here. March was a good month, but I like the sound of April as it brings us warmer weather and the opening day of the baseball season. While there was a lot of talk about the fall of the Euro during the past month, March actually turned out to be a good month for currency investors. The Euro was down slightly (.58% v.s the US$) but it was only one of 4 currencies which dropped vs. the dollar. The biggest loser in March was the Japanese yen, which was down 4.52%; but none of the other 4 currencies were down more than .6%. The top performers were the high yielders of the South African rand and Mexican Peso, both of which were over 3% higher vs. the US$ during past month. March was also a good month for the commodity based currencies of Canada, Australia, and New Zealand.
Investors had a lot to digest during the past month, but stayed amazingly up beat in spite of it all. Confidence in the global recovery continues to strengthen, as shown by the Conference Board's confidence index which rose to 52.5, exceeding the forecasts of most economists. The report, released late yesterday morning, sent the stock markets higher and the dollar lower. We have settled back into the 'carry trade' pattern which pushes the dollar lower whenever we get good data in the US. As I have explained, international investors have 'parked' funds in dollars while the try and figure out what is going on. Good news from the World's leading economy calms their fears, and these investors go looking for higher yields, selling their dollars.
Global investors will be looking at today's release of ADP Employment change for a clue on where the labor market in the US is heading. Economists predict the report will show a 40k gain in the number of jobs created, and will use this figure as an indication of what the monthly jobs numbers will look like when they are released Friday morning. If the ADP numbers are positive (and that is a pretty big IF), it will be the first increase since January of 2008. Economists are also predicting a big move higher in Friday's numbers, with the median forecast expecting an increase of 185k jobs for the month of March, the most in three years.
Bernanke and his cronies at the FOMC have said an improvement in the labor market is all they are waiting on to start increasing rates. So if the data comes in as projected, the expectations of higher interest rates in the US will rule the markets. With the EU locked in a struggle to rescue some of their weaker members, increased odds of an early interest rate rise in the US will push the dollar higher vs. the euro and other 'lower' yielding currencies.
But with all of these VERY rosy projections, the risk to the markets is that these numbers disappoint. We continue to feel the US recovery will be a slow one, and don't expect the labor markets to quickly recover. Without stronger jobs data, the FOMC will leave rates low in order to ensure the recovery. But that is just my opinion, and if the jobs data does show a strong move higher in new jobs, the markets will probably take the dollar higher.
Data released in Europe this morning showed consumer prices increased 1.5% in March from a year earlier, after a .9% gain in February. That is the highest inflation rate since December of 2008 and topped the economists' forecasts. A separate report showed the unemployment rose to 10 percent in February, the highest since August 1998. The combination of these two reports is a bit troubling for Europe, as they would appear to be risking a move toward stagflation, with a bad combination of high unemployment and high inflation rates. It continues to be a race to the bottom for the US and Europe, and right now it looks as if Europe is pulling ahead.
But not all of Europe is stagnating. The Swiss franc rose overnight as the nation's leading economic indicators rose in March to the highest level since November of 2007. The indicators aim to predict the Swiss economy's direction about six months ahead, and increased to 1.93 from a revised 1.9 in February.
The markets also got some good news from Norway with the release of retail sales for February. Norwegian retail sales rose .3% after falling in the previous month. Norway is one of our favorite currencies because of their strong commodity based economy and their solid fundamentals. Norway is the world's second richest country per capita and was able to pull through the global economic crisis with a milder recession than many of its industrialized rivals. Unemployment in Norway fell to 3.1 percent in March and consumer confidence is at the highest level since the first quarter of 2008.
This morning's news pushed the krone higher, topping off a nearly 1% increase vs. the US$ over the past 24 hours. The krone is still down 2.5% on the year, so investors still have the opportunity to add it to your currency portfolios at relatively good levels.
I was reading the latest edition of Chuck's 'Currency Capitali$t' newsletter last night, and enjoyed seeing a long article on Norway by my former co-worker Ashish Advani. In the article, Ashish points out that Norway continues to run a budget surplus, and also has a fully funded pension system. He also stresses the fact that Norway is not part of the EU and is therefore shielded from the problems or potential problems with the PIIGS. If you haven't checked out the Currency Capitalist, I would encourage you to give it a look: www.worldcurrencywatch.com .
But back to Norway. The central bank was first to start raising rates in the Northern hemisphere, but kept its benchmark rate unchanged last week. We expect the Norges bank to resume interest rate increases at their next meeting, and the recent data lends support to this thought. With a solid economy, and rising interest rates, the Norwegian krone could be one of the stars of 2010.
Gold had a volatile 24 hours, dropping $10 dollars through the trading day yesterday but rallying back up in early European trading. The market perception that US interest rates will be rising held down demand for gold yesterday. Gold is still seen as a hedge against inflation, and higher interest rates will keep inflation in check so gold is not as sought after. The higher rates also make gold more 'expensive' as there is a cost of carry for gold which does not generate any interest income.
Precious metals is an important part of portfolio diversification, and we encourage investors to hold at least some of the metals. The recent volatility in the markets could give you an opportunity to add to your holdings at what will eventually be seen as cheap levels.
Jennifer, who has been handling all of our trading with Chuck out; just informed me that today is the last day for 'unallocated' gold trades until next Monday. So if you plan on making a move into or out of our Gold or Silver accounts, I would encourage you to call today, or you will have to wait until after the Easter weekend.
I'll end today's Pfennig with a note I got from the big boss, Frank Trotter last night:
I'll be heading out to the MoneyShow in Vancouver next week to give two speeches - if you are in the neighborhood stop by to see Kristin or Kathleen or me on Wednesday and Thursday. As longtime readers know both Chuck and I think that Vancouver is one of the most beautiful cities around and I am excited to be there at least twice this year.
One of the things I'll talk about is the distribution of money in the USA and how that will likely impact future government policy in a negative way - at least for the US dollar. This is a moral hazard where many families believe (key word "believe", they don't "think") that they don't need to save, are incented by the government to spend, and anyway if they don't save they'll get a bailout down the road. This spells more government spending in the future for me, and a further deterioration of fiscal policy at the national, state, and local level from either side of the aisle.
I have added a short article on this in my http://www.FrankatEverBank.com blog under the thrilling title of "Investable Asset Distribution Declines". FrankatEverbank and the associated Twitter handle of the same name has just been launched and I wanted the loyal Pfennig readers to see it first. This is not a replacement for, nor a competitor to the Pfennig - I'll still be reading that every day and you should too. It is a place where I can comment on a number of broader topics in banking, the economy, security, and building wealth. Along those lines if you have particular questions you want to see addressed there is a "Have a question?" section on the blog or just reply to this email; I won't hit every topic but this is sure to spur some conversation you can carry out within the blog. Now go save some money!
I have worked with Frank for over twenty years now, and I have always valued the opportunity to sit down and discuss current events with him. He is one of the smartest guys I have ever met, and I'm not just saying that because I work for him! Now all of you can pick his brain also. I look forward to seeing where the discussions on his blog take us. Now on to the currency wrapup:
Currencies today 3/31/10: American Style: A$ .9168, kiwi .7097, C$ .9851, euro 1.3482, sterling 1.5163, Swiss .9442, European Style: rand 7.3368, krone 5.942, SEK 7.2038, forint 197.33, zloty 2.8637, koruna 18.8661, RUB 29.458, yen 93.37, sing 1.3992, HKD 7.7641, INR 44.9163, China 6.8259, pesos 12.3554, BRL 1.7898, dollar index 81.48, Oil $82.90, 10-year 3.86%, Silver $17.512, and Gold... $1,110.15
That's it for today... That is it for me this week, I think Mike Meyer will be brining you the Pfennig tomorrow and Chuck should be back in the saddle on Friday. I have really enjoyed brining you the Pfennig over the past month, thanks to Chuck for letting me Pfill in! The weather man says today is going to feel a bit like summer here in St. Louis. I took my daughter, Lauren to the Blues game last night and we got to see a rare home win! They still have a statistical chance of making the playoffs, but will be needing some help from the teams in front of them. I hope everyone has a Wonderful Wednesday and great Easter weekend!! I'm outta here!!
Chris Gaffney, CFA
EverBank World Markets
03-31-2010 10:34 AM