Risk aversion returns...
Daily Pfennig

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In This Issue.

* US dollar

* Italian election uncertainties

* Euro takes it on the chin

* Home prices still on the rise

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

Risk aversion returns...

Good day...and welcome to another Tuesday morning. Chuck is still on the mend, so I got the last minute call to come out of the bullpen and get us through the day. This is going to be another one of those short but sweet versions since I'm just putting this together right about the time Chuck usually sends it out, so it's going to be on the late side as well. With that being said, let's jump right in and briefly touch on some of the highlights.

Well, the dollar gained a decent chunk of ground yesterday, along with the Japanese yen, as political uncertainty in Italy sent investors running for the hills and away from the risk assets. Since we had this broad scale risk aversion that centered around Europe, the euro took the brunt of the storm in the foreign currency market by losing 1% yesterday. It looks as though some partial election results in Italy points toward a hung parliament that could result in another vote.

It sounds like the same kind of thing that we saw in Greece when they couldn't get a firm vote one way or the other, so hopefully the Italians get this figured out and move on. As it stands, it looks as though an interim government may need to be installed so that another vote can take place if this doesn't end decisively soon. It's not necessarily the uncertainty of a no-decision, but instead, it's the uncertainty of whoever wins the election keeping the current commitment to austerity measures that has investors concerned.

The Danish krone and Swedish krona ended up in the same boat as the euro with nearly 1% losses on the day. The Danish krone is pretty much pegged to the euro, so no surprise there, but it looks like the Swedish krone just got caught up in the sell Europe movement yesterday. We have recently seen government officials turn more optimistic about the Swedish economy as of late, so there weren't any changes in that assessment that would have prompted its selloff.

The Norwegian krone finished the day with losses of about 0.75% for the same reason as the Swedish krona. We didn't see any economic news that would have caused the loss, so it's safe to say it got wrapped up in the euro sells. The currency market has been fairly quiet so far this morning so there's not much to speak of. The only currency that has more than a negligible move is the New Zealand dollar, as it's down just over 0.50%. I don't see any specific news that would have sent it lower this morning, but inflation expectations did come in lower and then we have the January trade numbers due late tonight.

It looks like the market isn't anticipating any hawkish stances out of New Zealand anytime soon, so the currency has taken a breather at least for today. The Italian election looks to keep the markets in suspense so I wouldn't be surprised if volatility continues to grow. The data cupboards in the US were pretty bare yesterday, as we only saw a couple regional manufacturing reports. Neither one of them showed any improvement, and in fact, they came in lower than expected but it seems like none of this really matters when it comes to the national report anyway so take it for what you will.

The economic reports in the US today will be dominated by housing numbers as we see December home prices and the new home sales from January. Other than that, we get consumer confidence numbers from February and the Richmond Fed manufacturing index. The home price figures were just released, and showed yet another rise in prices so that's certainly welcomed news. Tomorrow opens the door to January durable goods and pending home sales and then on Thursday we get the revision to fourth quarter GDP. I'll be interested to see what kind of adjustments are made since the original printing was less than flattering.

As I take one last glance at the currency returns this morning, the South African rand has made its way to the top of the list as fourth quarter GDP came in stronger than expected. The government had recently cut their growth forecast this year down to 2.6% from 2.9%, and was a contributing factor to its fall over the past year. I saw a report calling the rand undervalued, but this currency's volatility makes that a tough call in my opinion.

Then there was this...According to a Bloomberg story, a U.S. shutdown is likely if stopgap isn't passed soon. Finger pointing between President Barack Obama and congressional Republicans focuses on an $85 billion sequestration set to take effect Friday, but the price of deadlock could become much higher a few weeks later. The U.S. government could be forced to shut down if Congress doesn't adopt an interim funding measure by March 27.

Currencies today 2/26/13. American Style: A$ $1.0254, kiwi .8288, C$ .9749, euro 1.3096, sterling 1.5164, Swiss $1.0755, . European Style: rand 8.8206, krone 5.7010, SEK 6.4570, forint 224.79, zloty 3.1817, koruna 19.5055, RUB 30.5930, yen 92.08, sing 1.2393, HKD 7.7594, INR 54.0950, China 6.2296, pesos 12.8036, BRL 1.9788, Dollar Index 81.66, Oil $92.43, 10-year 1.88%, Silver $28.88, and Gold. $1,594.33. and to take a peek at the U.S. Debt Clock, click here: http://www.usdebtclock.org/index.html

That's it for today...Thanks for hanging in there with me today. The news headlines were fairly sparse today so not much variety to report, but I was at least able to touch on the important points. Again, I apologize for being so late. With that said, I really need to hit the send button. Until next time, Have a Great Day!!

Mike Meyer
Assistant Vice President
EverBank World Markets

Posted 02-26-2013 12:43 PM by Chuck Butler
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