Chinese Data Throws Currencies Under The Bus!
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In This Issue.

* Chinese data prints weak.

* A$ gets hit the worst.

* Tricky headline writers.

* Some technical talk on Gold.

And, Now, Today's Pfennig For Your Thoughts!

Chinese Data Throws Currencies Under The Bus!

Good day.. And a Happy Friday to one and all! I got caught up on my writing assignments yesterday, so, on that basis alone, this should be a Fantastico Friday! How about the U.S. women athletes! Good thing for us, as a Gold medal was taken by the women teams in beach volleyball, water polo and soccer! Don't know about you, but I have been fascinated by these Olympics and have been glued to the TV watching them. And those platform divers, are they nuts are what? These Olympics will be over soon, and there will be a void for me for a few days.

Well, front and center this morning, the dollar is broadly stronger as the appetite for risk assets has gone in to have its stomach stapled! The culprit behind this move to run to dollars once again, is Chinese economic data. Yes, I told you earlier in the week that this was a week chock-full-o-Chinese-data, and the first round on Wednesday night (for us) saw inflation drop, but industrial production and Retail Sales slip but not by much, thus leaving the markets wondering if the drop in inflation was going to be enough to make Chinese leaders cut rates.

Well, wonder no more! Last night we received more Chinese data and this time, there is no question a rate cut will come soon. Chinese exports collapsed in July, and imports which had been taking up the slack in the falling exports, saw a deep drop too. As I had told you a long time ago, the Chinese leaders were pushing for domestic demand to offset the slowdown in exports, as they foresaw the Eurozone, their largest customer, recession, and the malaise going on in the U.S. And while this is a radical change for the Chinese, they were seeing their imports remain strong, which is a very good indication that the domestic demand is strong. Another indication of strength or lack of in domestic demand, is the lending data. and new loans fell to the lowest monthly number since September 2011.

For those of you keeping score at home. Exports fell from 11.3% to 1%, and imports fell from 6.3% to 4.7%... And the July Trade Surplus printed at $25.1 Billion VS $35.5 Billion a year ago.

So. I'll betcha a dollar to a Krispy Kreme that the Chinese react very quickly to this data set. We could very well see a reserve ratio requirement reduction (check out that alliteration!, my poetry teacher would be very proud of me!) today. rate cuts, stimulus, I'm sure the Chinese will be very aggressive in reacting to this data set.

Well. I guess I don't have to tell you long time readers that the Chinese data has really put the risk assets on the selling blocks this morning. And one of the prime reactions comes from the Aussie dollar (A$), which has seen the country build an economy on mining and exports of those raw materials mined to China. The A$ which was nearing a return to $1.06, had the trap door sprung under it, and the A$ is now fighting to remain above $1.05!

Maybe the selling of the A$ hasn't been as bad as one might suspect, given the Chinese data, and that is because the Reserve Bank of Australia (RBA) printed their quarterly statement on Monetary Policy. and in the statement, it was revealed that the RBA had made higher near-term growth forecasts.

In the back pages of the statement, the RBA made a comment that concerns me. They said, "the exchange rate may prove more contractionary than historical relationship might suggest." This concerns me, because previously, the RBA didn't make statements about the exchange rate, and now that they put this in on the back pages of the statement, so hopefully no one really noticed it now, but when at sometime in the future, if they had to do something about the strength of the A$, they could point to the statement and say, "hey, we told you back in August"!

Well. the currency rally "While Chuck was gone" is over, folks. I told you on Tuesday, that if you wanted to further the rally, I would have to go back on vacation, and you would have to contact the Big Boss Frank Trotter, or send those checks to Chuck's retirement fund. HAHAHAHAHA! But seriously. the rally is over.O-V-E-R! For now that is. and we're back to the hedge funds and currency gurus bailing out of the currencies and going back to dollars for safety. I can't believe I actually said that! For there's no safety in dollars! Maybe short term, but unless you haven't seen the debt clock recently, you'll want to hit that link in the Currency round-up, and then try to figure out how we as a country pay for those unfunded liabilities, without inflating the dollar's value away, to pay the bills with cheaper dollars.

You know. I've been watching the price action in Japanese yen this week, and this what I've seen. yen rallies (mini-rallies) during the U.S. trading session, but then is sold off in the Asian session. Does this indicate that the Bank of Japan is intervening and selling yen? Maybe. but what I think it really illustrates is the Asians know that Japanese yen is no so-called safe haven, and the western investors haven't figure that out yet!

Did you see that Big Al Greenspan, gave himself a C- minus grade for his forecasting while chairman of the Fed? C-minus? OK. I'll stop there before I get myself in trouble. But in a recent interview Big Al said that he doesn't " see how Greece can stay in the euro". He doesn't give any reasons for that statement, but it's interesting that he's still forecasting, with his C-minus grade.

I'm reading a story on the Bloomie this morning that on the outside just reading the story title might give you the willies. But. when you open up the story, you see what's really going on. those tricky headline writers, drawing me in. So. here's the title: Norway Sovereign Wealth Fund fell $13 Billion in Quarter. OK. if we're still talking about the Sov. Wealth Fund (SWF) losing money in 4 years from now, then Norway has a problem. But with a $620 Billion SWF they can afford to have a quarter that loses ground. So, move along, these are not the droids you're looking for.

I read a story last night that talked about how Norway has emerged as a safe haven from Europe's debt crisis. Makes sense to me! Now, if we could just get the currency gurus to stop tarring the Norwegian krone with the same brush used on the euro! Norway is NOT Greece, or Portugal, or Italy or Spain! Instead, Norway is the third-richest economy per capita in the world! Now, we as U.S. based investors may not see the move VS the dollar, but to illustrate the statement that investors are moving to Norwegian krone as a safe haven from Europe's debt crisis, all we have to do is look at the move of the krone VS the euro. and here we find that the krone has gained 5% against the euro since the end of March. (so about 5 months).

The top story on the Bloomberg this morning and on other news sites is a blip about how the U.S. won't prosecute Goldman Sachs or any of its employees for the firm's role in the packaging and sale of subprime mortgage products. Of course they won't! again, that's all I can say about that here. but join me on the patio tonight, and we can discuss this further! HA!

Whew! That was a close one. I almost slipped up. but, I'm older and wiser these days, and believe it or don't, my sarcastic tone has died down. Which is a good thing, considering my forays into deep sarcasm and hyperbole got me in hot water.

My charts friend sent me (thanks Scott) his latest work on charting the price of Gold. Let's see what Scott has to say. "The consolidating "Symmetrical Triangle" has now morphed into a more bullish triangle. An "Ascending Triangle" is the most bullish triangle pattern and we are somewhat in between. There is a sign of increasing demand in the charts.

In the near term the 30 minute chart has a "Concrete Ceiling" at $1,620. There is a determined seller or sellers here lately. However each time a resistance level gets tested, it get's weakened. The ceiling has cracks, and needs a few more hammers and chisels for this level to become strong support. Basically from my perspective supply has been getting absorbed, and if the demand continues to deplete it, price will eventually launch." - Scott Pluschau

I like to see the technical stuff every now and then. I've always used RSI's (relative strength index) and the commitment of traders (COT) , but the charting stuff is for other people that have far more gray matter than I have!

The data yesterday here in the U.S. saw the Trade Deficit shrink, like I said it would, given the price drop of Oil in June. the Trade Deficit was $42.9 Billion in June, VS $48 Billion in May. So maybe it's not just the drop in the price of Oil here. imports fell 1.5% in June. That's HUGE folks. so, then let's relate this to China. China's imports drop and risk assets get sold. But U.S. imports drop and the dollar gets bought? Stranger than fiction for sure!

The Weekly Initial Jobless Claims saw a drop of 6,000 from 367,000 to 361,000. But the continuing claims saw a HUGE jump from 3,279,000 to 3,332,000. that's not a good thing.

Then There Was This. from MarketWatch yesterday. "Mortgage Delinquencies Rise". "Mortgage delinquencies rose in the second quarter to a seasonally adjusted rate of 7.58% of all mortgages, up from 7.4% in the first quarter, the Mortgage Bankers Association reported Thursday. Mortgage delinquencies were up only slightly over the last quarter," said Jay Brinkmann, MBA's chief economist, in a news release.

"Perhaps more important than the small size of the increase, however, is the fact that it reversed the trend of fairly steady drops in delinquencies we have seen over the last year. This is consistent with the slowdown in the economy during the first half of the year and our stubbornly high unemployment rate," he said.

Chuck again. yes. I do believe that's more important. the trend. because something not mentioned is the fact that 2nd QTR delinquencies rose beyond seasonal expectations.

And. look for today. A federal consumer regulator is expected to propose the first set of national standards for the mortgage-servicing industry. I'm shaking my head in disgust here folks. Oh well. they know best, right?

To recap. The currency rally is O-V-E-R. for now that is. China's latest economic data saw to that! China posted very weak export and import data, thus showing that both sides of their economy's growth engine are hurting. The markets are already calling for aggressive monetary policy so look for that. The weak Chinese data has all the currencies looking for cover this morning, especially the Aussie dollar. Big Al Greenspan is forecasting an exit from the euro by Greece, but then he gives himself a C-minus for his forecasting while at the Fed!

Currencies today 8/10/12. American Style: A$ $1.0515, kiwi .81, C$ $1.0065, euro 1.2270, sterling 1.5605, Swiss $1.0215, . European Style: rand 8.13, krone 5.9230, SEK 6.6950, forint 226.80, zloty 3.3255, koruna 20.5030, RUB 31.94, yen 78.45, sing 1.2470, HKD 7.7575, INR 55.30, China 6.36, pesos 13.15, BRL 2.0125, Dollar Index 82.75, Oil $92.38, 10-year 1.63%, Silver $27.87, and Gold.. $1,608.90 and here's the link to the debt clock:

That's it for today. went home yesterday, and after reviewing some construction going on in my backyard, I collapsed in my chair, and fell asleep. woke up in time to go to bed! Little Braden Charles took his first steps yesterday, he was at the house when I got home, and I got to see him walk! I know, I'm sounding like a doting grandparent. sorry! It's supposed to be a grand weekend weather wise here in St. Louis, so we have that going for us! We had an office chock-full-o Jacksonville folks this week for meetings. I wasn't in the meetings so I have no idea what they were all about. what I don't know, can't hurt me, right? HA! OK. thanks for reading the Pfennig, and I hope you have a Fantastico Friday!

Chuck Butler


EverBank World Markets



Posted 08-10-2012 1:42 PM by Chuck Butler
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