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In This Issue.
* Risk assets have a deep slide .
* Fed gives parameters for additional stimulus.
* Australia prints a Trade Deficit!
* Norway considers a cap for euro cross.
And, Now, Today's Pfennig For Your Thoughts!
FOMC Meeting Minutes Deep Six The Risk Assets.
Good day. And a Wonderful Wednesday to you! Boy, did I ever "hit the wall" yesterday! I got home, and collapsed in my recliner, and immediately fell asleep. It had been a whirlwind 3 weeks and then I "hit the wall". It looks like the risk assets have "hit the wall" too yesterday afternoon, which has carried through to the overnight markets..
Yes. yesterday afternoon, the currencies and metals and even stocks began to slip and that has really gained momentum in the overnight markets. It all began, I do believe, with the Fed's FOMC meeting minutes. The minutes indicated that the support for additional stimulus has faded, (However, you wouldn't know it by Big Ben Bernanke's press conference after the meeting). and they laid out the scenario from which they would be steered to additional stimulus. Either of these two scenarios will trigger more stimulus according to the minutes.
1. If the economic recovery stalls
2. If inflation remains low in the medium term
This really allowed the dollar to kick sand in the face of the currencies and metals. and like I said, it has carried over to this morning.
Then to add salt to the euro's wounds from the FOMC minutes. The Spanish bond auction this morning, the first one since their new budget, was not well received. I told you yesterday that everyone is focusing on Spain now, and that was seen in the weak demand for new Spanish debt this morning. Spain sold 2.59 Billion euros of bonds, which is far less than what they wanted to sell. The maximum target was 3.5 Billion euros of bonds.
Because of the Good Friday week, the European Central Bank (ECB) will move their regular Thursday meeting to this morning. But don't expect any real news to come from the meeting, as rates will remain unchanged, and ECB President, Draghi will hold a press conference afterward.
There's some troubling news coming from Norway this morning. Norwegian leaders are contemplating the implementation of a "cap" for the krone VS the euro, much like the Swiss did back in September last year. The Norwegian Gov't is very frustrated with their inability to get the krone weaker in the cross to the euro. They've cut interest rates, they've jawboned in an attempt to get the krone weaker VS the euro, but it's just not happening. And now, they are looking at what the Swiss National Bank (SNB) did, and contemplating using that type of line in the sand for the krone / euro.
I say this is troubling because, as we learned with the Swiss franc / euro cross, when it got weaker, it carried over to the franc's value VS the dollar..
So. I guess it doesn't pay to have the best surplus of any AAA rated nation in the world. no debt, and an economy that will most likely expand 3.25% this year, and a banking sector that's very strong. You know, people/ investors want to own currencies from countries like that, and the country should welcome currency strength, to help fight inflation, which is exactly what the strong krone has done, as Norway's inflation is less than 1/2 of its 2.5% target for inflation!
Wait Chuck! What the heck are you saying? That we can no longer value currencies as the stock of a country, for that country could simply decide to place a "cap" on how strong the currency can be? I sure hope that's not what I'm saying! Maybe calmer heads will prevail here, and the Gov't leaves the currency alone, except for their rate cuts and jawboning in hopes of keeping the currency from the outer atmosphere!
Well. the "new Swiss franc" as I've called it, and others. The Aussie dollars (A$) has really fallen on difficult times recently. The A$ fell overnight to a level it has not seen since last October, at $1.0257. First this week we had the Reserve Bank of Australia (RBA) express a willingness to cut rates going forward, and then last night Australia posted an unexpected Trade Deficit of A$ 480 Million. OK, that seems like chicken feed compared to the size of the Trade Deficits posted in the U.S. but given Australia's size, and the fact that the experts forecast a $1.1 Billion surplus for February, this caught the markets off-guard.
I think that this Trade Deficit for Australia in February, is something that we might see more of in the coming months, given the "moderation" of the Chinese economy.
Speaking of China. well, the Chinese leaders continue to take steps to open up the Chinese economy, which will lead to a greater distribution of the renminbi. Yesterday, The Chinese Premier, Wen Jiabao, said that "China needs to break a banking "monopoly" of a few big lenders that make easy profits." He went onto say that, "some successful recent financial reforms in the city of Wenzhou, in Zhejiang province, would be expanded nationwide."
Then overnight, the Chinese more than doubled the amount foreigners can invest in Chinese stocks, bonds and bank deposits. The amount increased to $80 Billion from $30 Billion. And now there are rumors that China may, even as soon as today, lower either their interest rate or reserve requirement.
I told you all last year, that China was shifting away from the export driven economy to a domestic demand economy, and while the change is nascent at best, it is going on. And soon enough, they're economy will be more diversified. They are already the 2nd largest economy in the world, imagine them as a 50% domestic demand driven economy.
Yesterday in the U.S. the data cupboard yielded February Factory Orders which reversed January's -1.1% decline, with a rebound of 1.3%... So, for the first two months of the year, Factory Orders were basically flat. U.S. Vehicle Sales also printed, and while they are impressive (goes back to that Consumer spending I talked about yesterday, eh?) the Vehicle Sales did not meet the expectations in March.
From here on out to the end of the week, we'll see employment reports that lead us into the April Jobs Jamboree. For instance, today, we'll see the ADP Employment Change, and so on.
Then There Was This. from the Washington Post. "The chief of the General Service Administration resigned, two of her top deputies were fired and four managers were placed on leave Monday amid reports of lavish spending at a conference off the Las Vegas strip that featured a clown, a mind readers and a $31,208 reception.
Administrator Martha N. Johnson, in her resignation letter, acknowledged a "significant misstep" at the agency that manages real estate for the federal government. "Taxpayer dollars were squandered" she wrote."
Chuck again. a couple thoughts here. 1. they all promise change but soon fall into the same spend, spend, spend habit. At the start of Ms. Johnson's tenure in February 2010 she called ethics, "a big issue for me."
And then 2. how can we get this to happen to all the Congressional lawmakers that continue spend what we don't have?
To recap. It's definitely a risk off day, as the risk assets, even including stocks, began to slip yesterday afternoon and carried over the selling in the overnight markets. The selling began when the FOMC meeting minutes printed and were different than what Big Ben had to say a couple of weeks ago about further stimulus. Norway is contemplating using a "cap on the cross to the euro, like the Swiss did. UGH!, and the Aussie dollar gets hit again, when an unexpected Trade Deficit printed.
Currencies today 4/4/12. American Style: A$ $1.0260, kiwi .8145, C$ $1.0060, euro 1.3160, sterling 1.5875, Swiss $1.0935, . European Style: rand 7.8250, krone 5.7530, SEK 6.6935, forint 224.55, zloty 3.1535, koruna 18.6830, RUB 29.43, yen 82.20, sing 1.26, HKD 7.7655, INR 51.05, China 6.2960, pesos 12.85, BRL 1.8240, Dollar Index 79.60, Oil $104.44, 10-year 2.18%, Silver $31.97, and Silver $1,631.70
That's it for today. Day 2 of the new system and I'm still mainly a spectator, feeling like I'm trying to make my way around a room with blinders on. Maybe this is a signal to me to ride off into the sunset. Nah. I've still got a son to get through college! So, I carry on despite all this! I don't really follow women's basketball, I don't have anything against it, just not my fave. But to finish a season at 40-0 like Baylor's women's team did, is pretty impressive. no team, men or women had finished 40-0 before! The spring storms began yesterday in Dallas. These spring storms can be very nasty, and the St. Louis area is in the path of many of these. So, here we go again! I'll be going back to south Florida at the end of the month. I'll be speaking at the Casey Conference in Westin Florida the last weekend of April, and then right back at the KCI Conference the following weekend, the first weekend of May. Google these if they interest you. and with that, I'm going to go attempt to figure out what I'm doing with this new system! I hope you have a Wonderful Wednesday!
EverBank World Markets
04-04-2012 12:21 PM