In This Issue.
* Currencies Level off for the day.
* Gold gets whacked and attempts rebound.
* Spain experiences problem with debt auction.
* Bank of Canada leaves rates and bias unchanged.
And, Now, Today's Pfennig For Your Thoughts!
Chinese Announcement Gets Risk Assets Moving!
Good day. And a Wonderful Wednesday to you! Hey! Front and Center here (this is important stuff folks!) Tomorrow is St. Nick's Day, which means that you need to put your shoes outside your door tonight, to be filled with goodies by St. Nick tonight! We always followed this tradition at our house, and the kids got a big kick out of it. So, I'm actually writing this to remind you dear readers, and my grown kids, so they don't forget to continue the tradition!
Well. the currencies remained well bid most of yesterday, and Gold tried to comeback, but was held down below $1,700 throughout the day. The euro, tried all day to move past the 1.31 level, but wasn't able to until the overnight markets took the euro to 1.3127. But that didn't last long, as Spain announced that it had encountered a problem with its latest debt auction. Recall that last week I told you how the euro has tried several times to move past 1.30, but each time it was pushed back down. It now appears that the new level is 1.31. Long time readers know that this is the way the euro rose in 2003 when it first got legs, and became the offset currency to the dollar. I'm not saying that as we head into 2013, that the euro will mimic its strong moves of 2003, I'm just saying that this is how it traded back then.
The Big News overnight came from China, once again. China's regulators announced that they had abolished a rule limiting insurers' investments in commercial banks. Chinese leaders also announced that will actively promote urbanization and expand domestic demand. The expansion of domestic demand in China isn't anything new, folks. I've been talking about that for at least two years. But the urbanization is interesting in that it involves a lot of infrastructure spending. Remember, China has a Treasure Chest of reserves to use whenever they see a sector or project that needs funding. And infrastructure spending lends itself to images of raw materials being needed. and we all know where those raw materials come from!
And the Chinese renminbi/ yuan gained to the upper limit of the band overnight on this news. I'm still expecting an announcement regarding a widening of the currency band used by the Chinese to manage their currency. This may take some time to come to fruition, folks, so be patient. The Chinese don't do anything in a hurry.
In Australia overnight, 3rd QTR GDP printed at +.5%, pushing the annualized GDP level to 3.1%, not too shabby, but, not at the earlier annualized level. The Aussie economy seems to have leveled out, and is in need of a boost, which could come from China, very soon. Aussie employment data will print tonight, and it too should show weakness and a further leveling of the economy. So. the Aussie dollar (A$) has leveled out too.
Across the Tasman, the Reserve Bank of New Zealand (RBNZ) will meet this afternoon (for us) and given the weakness we've seen in the N.Z. economy lately, I wouldn't be surprised to see a rate cut. However, new RBNZ Gov. Wheeler has already expressed that he has a limited appetite to lower rates at this time. Knowing this, the markets are feeling pretty frisky this morning, and marking up the New Zealand dollar / kiwi.
While I'm in the Asian region. There was news overnight that S. Korea had added 14 metric tons or about $780 million, to their Gold reserves. This is always interesting to me, to see and hear about countries and Central Banks loading up on Gold. you do realize that these Gold investments used to be in dollars and treasuries, right? Central Banks around the world have really reduced their dollar holdings, and have begun to diversify into other currencies and Gold. I saw some data on this percentage drop of dollar holdings the other day, but failed to capture it, to share with you. my bad.
So. the currencies are all pretty flat this morning, as the markets prepare for the RBNZ meeting this afternoon, and the dual meetings of the Bank of England and European Central Bank tomorrow. All this will take place as precursor to the Jobs Jamboree this Friday. Today we'll see what is supposed to be the "indicator" of the Jobs Jamboree number, in the ADP Employment Change report. The experts believe the ADP report will show that 125,000 jobs were added in November. So, we'll have to wait-n-see if Friday's Jobs Jamboree plays well with that so-called "indicator".
But, before we get to Friday, the U.S. data cupboard has other data for us to analyze, like. October Factory Orders, which are expected to be flat. The flat Factory Orders data will just play well with the Manufacturing Index which fell to the contraction side of the ledger in November. I told you all a couple of weeks ago, that this kind of data was beginning to mount up for the U.S. economy, which leads me to believe that all the build up to the election was nothing more than smoke and mirrors.
So. if the dollar is held to the same criteria as other countries are when their respective economies head south, then the green/peachback is in for a trip to the woodshed. That is as long as the trip to the south, isn't a trip to the deep south! For we all know from experience (2008) that when that happens, investors flock to dollars and treasuries as so-called safe havens.
Speaking of all that. there were no positive movements on the Fiscal Cliff discussions yesterday. One party presents their plan, which is rejected by the other party, and this goes back and forth. I'll tell you this, I think Americans are tired of all this back and forth with no compromise. We need someone to come riding in on a white horse, and put this to bed!
Well. yesterday I told you about the rumor going around in Switzerland, regarding applying negative rates on franc deposits. That rumor became fact, as Credit Suisse told bank clients that it will start applying negative rates on franc cash balances. I find this very strange in that this is a move by a Swiss bank, not a directive of the Swiss National Bank (SNB). If I were a Swiss bank owner, I would use this as my opportunity to steal accounts from the banks that are charging negative rates on franc deposits! Anyway. the franc is getting offered in the markets, which means it's getting sold!
A dear reader asked me yesterday why Gold and the dollar are moving more parallel directions now? Are commodities in such peril as 2013 approaches? Ahhh grasshopper. this is all about the Fiscal Cliff. As I've explained previously. Should the Fiscal Cliff actually hit the U.S. economy in 2013, we could see a repeat of 2008, where the risk assets got hammered in favor of the so-called safe haven assets. So, with every day that passes without resolution of the Fiscal Cliff, the more the markets get itchy and nervous. I'll repeat myself for about the 10th time, but I just don't see the lawmakers allowing this Fiscal Cliff to happen, even though, they should! They will feel the need to intervene and kick the can down the road further. and when they do, the dollar will possibly see a lot of selling.
The Commodity Bull Market is nowhere near the end, in my opinion. But, remember a trend is not a One-Way street, and that there can be volatility, and short-term losses.
Well bust my buttons! The Bank of Canada (BOC) didn't change their statement/ bias yesterday when announcing that they would keep rates unchanged. Recall that I had thought, that given the rotten 3rd QTR GDP report that the BOC would find it necessary to change their tightening bias to a neutral bias. But the BOC left their statement of: "some modest withdrawal of monetary policy stimulus will likely be required." Same-old, same-old. This news immediately broke the hold on the Canadian dollar /loonie, and we saw the currency steadily move higher VS the U.S. dollar.
Then There Was This. Our metals trader, Tim, sent me a note yesterday regarding the expansion of welfare recipients, which showed that there are just 1.2 private sector workers per 1 person on welfare or working for the government. That's almost 1 to 1 folks! So, this really piqued my mind and got me looking into this. And what I see is welfare expanding beyond what Congress originally envisioned, and has created an unsustainable fiscal problem for the U.S. Here are a few more data points that should scare the bejeebers out of you, they did me!
In the 1960's, there were 18 workers per Medicaid recipient. Today that number is 2.5.
The number of Americans on disability has risen 19% faster than jobs created during this recovery.
There are now just 1.65 employed persons in the private sector per 1 person on welfare assistance. Which means there are fewer workers and their tax payments have to support more and more recipients.
Chuck again. OK. now, any time I discuss this stuff, I need to make the disclaimer that I'm not taking issue with the people that truly need welfare assistance. like disabled people, and so on. I'm talking about the misuse of the assistance. We all know that it exists, in fact there are times we get it shoved in our face, and quite frankly, how can we as a country continue to make these payments to the people that misuse the assistance?
To recap. The currencies remained well bid throughout Tuesday, except for Gold, which got whacked below $1,700, but is attempting to recover this morning. The currencies this morning have leveled out for now, with no movement in the Fiscal Cliff Talks, the markets are getting leery of moving anything in any direction right now. China made a big announcement overnight regarding investments, and the Bank of Canada left rates and their bias unchanged.
Currencies today 12/5/12. American Style: A$ $1.0475, kiwi .8215, C$ $1.0080, euro 1.3075, sterling 1.6105, Swiss $1.0770, . European Style: rand 8.7750, krone 5.6275, SEK 6.6150, forint 215.95, zloty 3.15, koruna 19.2850, RUB 30.81, yen 82.15, sing 1.2185, HKD 7.75, INR 54.55, China 6.2250, pesos 12.94, BRL 2.1080, Dollar Index 79.80, Oil $88.57, 10-year 1.60%, Silver $33.14, and Gold. $1,705.40
That's it for today. I had to stop for a minute to sing along with Stevie Wonder and his great song, My Cherie Amour. I'm sure Mike got a kick out of that! But he's heard it all before. He comes in early and has to listen to me singing along with the songs on my iPod. Well, I hit the wall yesterday. I couldn't stay awake past 5 o'clock! But, that means I'm well rested today! And ready for St. Nick's Day tomorrow! It's a good thing I was asleep and didn't see my beloved Missouri Tigers losing in the 1st half to S.E. Missouri St.! The Tigers came back for the win, but that first half should never happen! OK.. time to go. I hope you have a Wonderful Wednesday!
EverBank World Markets
12-05-2012 12:00 PM