A down day for the dollar...
Daily Pfennig

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In This Issue..

* Jobs disappoint...

* Factory orders hold up...

* Franc rises to record against euro...

* Another feather in the hat for Canada...

And Now... Today's Pfennig!

A down day for the dollar...

Good day and a Terrific Thursday to you...Its always nice to flip the calendar over to April each year, because in my book at least, this is the unofficial start of spring. We were greeted with a picture perfect day yesterday and today should be even better here in St. Louis. There's just a lot to be said about walking outside without a coat, seeing everything turning green, and hearing the birds chirp. Both Chuck and Chris and out today so I have the honor of bringing you today's Pfennig. Since I don't have any jokes to share with you on this April Fools Day, I'll get right to the meat and potatoes (which is probably a good thing since my joke telling abilities aren't exactly at par.)

The big story from yesterday was the disappointing jobs numbers released here in the US. The markets were expecting to see a 40k rise from the ADP Employment report, however, companies actually cut 23k jobs in March and the February figures were revised down to a 24k loss from the original 20k decline. Even though the March contraction was the smallest in two years, it was still a negative number. While many businesses have already cut staff to minimum levels, the broad based layoffs and job cuts are pretty much a thing of the past.

At this point, I would say companies are still hesitant on expanding payroll and waiting for the all clear before making any type of significant expansion. Besides, when the current employees are happy to have a job and are willing to work more for the same pay in order to cover the empty desks in many instances, there's not much incentive right now to go out and hire a bunch of people.

Keeping with the employment theme, we get to see the weekly initial jobless claims along with continuing claims first thing this morning. While both are still expected to be pretty much a non-event, with jobless claims expected to remain well above 400k, all eyes are focused on the Friday release of the Labor Department's version from March and a re-visit to the unemployment rate. While the ADP figures give us something to work from, its always a mystery to see what kind of impact the BLS has in store for us.

We also had February Factory Orders yesterday, which showed yet another gain, as companies continue rebuilding inventory after the depletion of stock from the height of the global slowdown. Orders rose for a 10th month in the last 11 by 0.6% and saw a significant revision from the January number up to 2.5% from the initial release of 1.7%. While manufacturing has been one of the few bright spots so far, we need employment to follow suit in order to have any type of sustainable recovery. It seems like the key is in the ignition with these manufacturing numbers, but the engine isn't going to turn over without gas in the tank, i.e.. Gainfully employed people to go out and buy stuff that would keep the factories churning product.

There were a couple of secondary data releases yesterday as well with the monthly mortgage apps showing a 1.3% gain along with Chicago and Milwaukee manufacturing numbers basically offsetting themselves. Today, we get another gauge of manufacturing health with the ISM Manufacturing figure and vehicle sales from March. Both pieces of data are expected to show increases and I don't really have a reason to doubt that given the continued expansion of factory orders. Like I said before, most investors are holding their breath until tomorrow for those all important jobs numbers.

Moving on to the currency market, the dollar was the big loser on the day and saw the bulk of its drop right after Chris finished up yesterday as a result of the ADP figures. The euro shot up to a high of 1.3549 and gold rose to just over $1,118 on the day but sold off a bit by the time I left the office to 1.3510 and $1,113 respectively. It wasn't necessarily the usual suspects leading the charge against the dollar yesterday, which was nice to see, but instead was just a modest broad based increase in most currencies.

There were only three currencies that didn't join the party. The Japanese yen, which has seen its fair share of pressure lately, lost another .50% and was trading solidly in the 93 handle. It seems like the yen may be getting caught up in some carry trades as investors increase bets that rates are going to rise soon here in the US. I'm not so sure I would take the bet at this point since the Fed has made it pretty clear rates aren't going higher until the employment picture improves. Unless the job market comes with both guns blazing over the next few months, I don't see a rate hike on the kitchen table at this point.

The Australian dollar lost about .25% on the day as February retail sales disappointed with a 1.4% drop, causing some to think the rate hike bus may slow down a bit. Building approvals also came in lower than expected as first time buyer incentives have been reduced and higher rates are starting to make buyers think twice. With that being said, the central bank is still concerned about rising home prices and said mortgage rates are still .50% lower than the average over the past 15 years.

The stronger than expected employment situation still keeps inflation on the watch list, so its safe to say rates will increase, but how much and when is the debate at this point. An April rate hike of .25% is still in the cards but it's a close call by most economists as to whether that gets pushed to May. Even though yesterday's report took a breather, the Aussie remains at the top of the list especially since it has a direct line with China.

It usually goes without saying that if Australia sold off, you can bet New Zealand followed suit. While the kiwi was only down a hair yesterday, rates should be heading up there fairly soon. The two winners on the day were the South African rand and the Swiss franc, which I would say are two that are on opposite ends of the spectrum as far as fundamentals are concerned.

The rand is primarily an interest rate differential and gold play, so the nice rise in gold was a big reason for its move yesterday. Even though the nation posted its biggest trade deficit in over a year during February, investors were willing to overlook the black mark as the global economic recovery story continues to unfold.

The current account deficit is expected to reach 4.9% of GDP this year and 5.3% next year so you would expect investors would be a bit gun shy considering the current environment, but higher yields can be very persuasive. Risk levels in the market and the price of gold hold the big stick with this currency, so hot money can flow into and out of the rand quickly making this one of the more volatile currencies. Caution and a strong stomach are generally requirements here.

On the other hand, the Swiss franc saw the same type of appreciation but for a much different reason. As Chris mentioned yesterday, leading economic indicators rose to the highest level since Nov 2007 and gives credence to the Swiss economy outperforming the euro zone. Given this scenario, the franc strengthened to a record 1.4209 against the euro as investors see this as a euro alternative. The only problem with this appreciation is the Swiss National Bank isn't too keen on disproportionate moves with the euro.

The last time francs were testing record highs with the euro, we saw the SNB step in the market to intervene by selling the currency to stem its rise and cause downward pressure. There is a track record for this so I wouldn't be surprised to see the SNB get involved if this doesn't take care of itself. Like Chuck always says, central banks don't have deep enough pockets to make this a habit but they sure can have an impact in the short term.

Most of the other currencies were huddled together as the euro drug many of the other European currencies along due to the US dollar selloff. In the middle of the pack, the Canadian dollar rose another .50% and traded up to 1.0130 as it keeps flirting with parity. The Canadian economy keeps trucking along as we had yet another report showing things are looking on the up and up. The January GDP figure came in higher than expected at .6% from December and marks the 5th straight increase and grew at the fastest pace since December 2006. This outcome is certainly a good start for the 1st quarter and there aren't any indications of losing momentum so far.

The consistent data coming out of Canada has prompted its 4th consecutive quarterly gain, the longest such streak since 1988, and has economists talking about a rate hike as soon as June. While the central bank doesn't like to stray too far from the Fed's path, inflation and growth are outpacing forecasts so a move upward would seem justified at some point in the foreseeable future.

A few weeks ago, I saw some comments from Finance Minister Flaherty where he said Canada's currency is at a level that continues to keep the economy competitive, which I found interesting. Not only does this express confidence about the economy and that he's comfortable with exchange rates near parity, but more importantly, it's a reversal from his comments last year when he was concerned about its rapid rise and threats of intervention. Just another feather in the hat for the Canadian dollar.

As I came in this morning, everything is pretty much right where they were last night when I was walking out the door. There hasn't been much a move one way or the other since I've been typing this morning, but there has been an ever so slight buying bias toward the currencies. We should at least get some kind of direction in about an hour when the jobs and manufacturing numbers are released. The big boss, Frank Trotter, had something to add before I put a bow on it for today. You know from yesterday that Frank is now sharing some of his thoughts on various topics via a newly created blog, so here's what he had to say...

"We are all concerned here about how government creates so many unintended consequences as it zigzags along setting policy and making laws. Could corporations do this directly in the future and if so how does this impact our current investment outlook? Would that be a great thing with all the tension but effectiveness of Deadwood, or decay into a cacophony of too many competing interests. Take a look at this post in the FrankatEverBank blog - Death Star Google - and leave your opinion behind. http://www.frankateverbank.com/death-star-google/." Check it out, I know I will...and on that note, its on to the big finish:

Currencies today 3/31/10: American Style: A$ .9185, kiwi .7063, C$ .9886, euro 1.3510, sterling 1.5231, Swiss .9504, European Style: rand 7.2476, krone 5.9375, SEK 7.2018, forint 195.87, zloty 2.8452, koruna 18.7812, RUB 29.40, yen 93.53, sing 1.3977, HKD 7.7668, INR 44.9175, China 6.8264, pesos 12.3386, BRL 1.7813, dollar index 81.025, Oil $84.41, 10-year 3.84%, Silver $17.6825, and Gold... $1,116.00

That's it for today...just looking forward to spending the Easter holiday with family and friends. I woke up this morning thinking it was Friday, so I had a surprise when I got in the car and turned on the radio...that's as bad as waking up 5 minutes before your alarm goes off. Anyway, Chris should be sitting on the beach right about now with some type of umbrella drink in his hand and Chuck should be getting back from his annual trip to see our Cardinals in spring training. I've been to Jupiter, FL once to see them in action and I can definitely see why Chuck enjoys it so much...thinking about it just puts a smile on my face. Oh, and I almost forgot. April 1 also marks our Tim Smith's birthday...so Happy Birthday Tim. Well, we have a busy day on tap so I'd better get to it. Have a great day and until next time...over and out.

Mike Meyer

Assistant Vice President

EverBank World Markets



Posted 04-01-2010 9:08 AM by Chuck Butler