In This Issue.
* Euro rises, yen falls.
* U.S. Trade Deficit widens.
* Are metals consolidating?.
* Stephen Roach on QE.
And, Now, Today's Pfennig For Your Thoughts!
A Jobs Jamboree Friday!
Good day. And a Happy Friday to one and all! The sun finally came out for the whole day yesterday! WOW! It's amazing who everyone's moods change when the sun is out, eh? It had felt as though we were living in a snow globe for about 3 weeks, so I'm glad that is over! Heading to spring, one of my fave times of the year. March came in like a lion, so that means it will leave like a lamb, and that's just hunky dory with me!
Well. Today is all about the U.S. Jobs Jamboree. It's like that military road block, nothing or nobody is getting through! So, we have to deal with the Feb jobs data. Long time readers know I totally dislike this whole process of the markets living and dying on the fabricated and made up jobs numbers. That's why, I've always told you, I get more out of the Average Hourly Wage and Average work week data that goes along with the Jobs data. But. the markets get all lathered up over what "the number is", so we have to play along, eh?
So, for the record, the so-called experts, have forecast that in February the U.S. added between 165,000 and 180,000 new jobs last month. Not bad, but remember it's a fabricated number by the Bureau of Labor Statistics (BLS) For those of you who like to taunt me after I make my monthly best guess at the number, and fail miserably, you'll be interested to know that I think the jobs data will disappoint, which is to say they will be less than 165,000. But that's just me. the markets are pricing in a huge blowout of jobs added in February, so.. There's a downward risk in the dollar this morning, but only if the data disappoints.
Any number that doesn't disappoint, will add to the bias to buy dollars this morning. I think. I say that because the markets have moved the goal posts on us so many times since the financial meltdown. The markets will go for awhile marking down the dollar for job increases, and then suddenly change to marking up the dollar for job increases. So, this is like roulette. I'm going to put my money on black.
The euro had a nice run yesterday moving through the 1.30 handle toward 1.31, as the European Central Bank (ECB) did indeed leave rates unchanged and the short euro trades that had been put on recently in hopes that the ECB would cut rates, had to be unwound. I told you yesterday, that I could have saved them the trouble if they had only read the Pfennig or asked me! For I would have told them exactly what was going to happen at the ECB meeting. Not that I know anything that other people don't know. It was all there in black and white, but you know traders. they are a fickle lot.
ECB President, Draghi, failed to mention downside risks to inflation like he did at last month's meeting. This really got traders all lathered up, and short term rates on bunds (bonds) rose, thus widening the rate differential to U.S. Treasuries. and rate differentials have always been a strong fundamental to use in valuing currencies against other currencies.
They are expecting another round of repayments to the LTRO loans to banks in the Eurozone today. I don't think this would move the euro one way or another, unless, the thought that 3 Billion euros from the first round, and 5 Billion euros from the second round will be repaid, is baseless. And I doubt that is the case. if anything, the numbers might be a little low.
The one currency really taking a whipping from the dollar overnight is the Japanese yen. I wonder where all those analysts are now, that said a few weeks ago that the yen's weakness had reached the end? That was when yen was around 93. well, it hit a low of 95.60 overnight. (remember, yen is a European priced currency, so as the price rises, the value of yen decreases)
China printed some trade balance data last night, and while their reserves got a huge boost from their exports, the markets were fixated on the Imports data, which was expected to be slow, printed worse than expected, thus indicating that the domestic demand in China is faltering. the data didn't really hurt Chinese renminbi / yuan, but what it did was send a smoke cloud message to Australia.
I've told you for some time now that the Aussie dollar (A$) is my proxy for global growth, and when China's imports slow, that hurts the A$. For those of you keeping score at home, you'll want to jot down these numbers. Chinese exports increased nearly 22% from a year ago, and imports declined 15.2%... I get a little antsy when I see data like this. I would love to focus on the fact that China's reserves soared higher. But a 15% fall in imports really rains on that parade. If you don't see it that way, you had better look at the reaction to the data in the A$'s pricing.
In addition here. China has once more let everyone know that they are not happy nor approve of "some countries overly accommodative monetary policy." I really liked this quote. "This is an act of transferring the crisis to others" And they are absolutely correct!
Here in the U.S. the numbers were reversed. U.S. exports fell 1.2%, while imports rose 1.8%, thus blowing out the Trade deficit from $38.1 Billion in December, to $44.5 Billion in January. This Trade Deficit has really been the albatross around the U.S's neck for some time now. The markets however, just shrug off this data now. they've become Comfortably Numb with large deficit numbers here.
Up north in Canada, they too printed a trade balance report for January, and while the total numbers are small compared to the U.S. at least Canada saw a narrowing of their Trade Deficit. December's deficit was $.3 Billion, and January's was $ .2 Billion (it was expected to widen to .6 Billion deficit) Data like this should help the Canadian dollar / loonie, which has really slumped recently.
Gold, Silver and Platinum all range traded yesterday, with very little movement all day, and all night. I guess metals traders are also looking toward the Jobs Jamboree this morning for direction. I look at this as a "consolidation". I hope I'm correct here, because these current levels could prove to have been basement bargain prices. Of course I could be wrong, it's just my opinion, and a lot of that depends on how much flesh the Bullion Banks still want to take.
One of my fave Beatles, George Harrison, recorded his first (I think) solo album called, "All Things Must Pass". I think that applies to the metals, and the downward moves caused by the paper trades.
OK. I think that album titled could be used for a lot of things. like Quantitative Easing (QE). But like the title of a few presentations I did last year, What Appears to be Evident, may not be imminent. One thing going on right now, that isn't going to pass.. is our debt crisis. not without a lot of heavy lifting. And by the looks of our lawmakers, I doubt any of them are capable of heavy lifting! HA! I read a report from the Concord Coalition, which is a group that's been in favor of lower deficits. They said that the automatic cuts that went into place last week, are "attacking the wrong part of the budget." I say. sure the major heavy lifting is in Medicare, etc. but you have to start somewhere. I told the audience in Orlando last month, that "I believe we need to implement a process that says, if we can't pay for it, we don't buy it" , and so. it goes on.
Then There Was This. Long time readers know that I've always liked the thought process and ideas of Stephen Roach, the former economist for Morgan Stanley and now at Yale. Well, here are some of Stephen's thoughts on the effect of QE policies on currencies.
"Whether it's the Bank of Japan (8301), the Federal Reserve or even the ECB, the idea that they can engineer economic recovery by quantitative easing that may lead to weaker currencies ultimately is not a story that will end in a pretty way. Currency devaluation as a recipe for economic growth always comes at a cost of taking market share from someone else."
"China is understandably concerned about that, as has been Brazil, as has been most major developing economies that rely on exports as a source of economic growth."
"The developed economies say, well we're not trying to depreciate our currencies, but they know this is going to happen."
"This is one of the unintended and potentially dangerous consequences of the financial engineering of quantitative easing." - Stephen Roach
Chuck again. Yes. the U.S. knows this depreciates the dollar, in fact after round one of QE, James Bullard, President of the Fed St. Louis, said that he believed QE was successful because the stock market was stronger, and the dollar was weaker.
To recap. today is all about the U.S. Jobs Jamboree. so you might as well, strap yourself in, and get ready. Chuck thinks the data will be disappointing. But the markets are pricing in a HUGE increase over what was previously expected (165K). So, today should be quite interesting!
Currencies today 3/8/13. American Style: A$ $1.0275, kiwi .8290, C$ .9710, euro 1.3110, sterling 1.5035, Swiss $1.06, . European Style: rand 9.10, krone 5.6840, SEK 6.3535, forint 226.75, zloty 3.1555, koruna 19.4095, RUB 30.65, yen 95.75, sing 1.2460, HKD 7.7555, INR 54.29, China 6.2165, pesos 12.74, BRL 1.9540, Dollar Index 82.18, Oil $91.28, 10-year 2.01%, Silver $28.80, and Gold. $1,577.60
That's it for today. didn't get to spend much time with Alex this morning before he headed out the door. He goes to the Waffle House on Fridays and has breakfast with his friends before school. This weekend, will be the birthday of my good friend, and spring training buddy, Rick Baur. Happy Birthday Rick! We'll celebrate his birthday and mine next week in Jupiter! I'm so glad and thankful that I recovered quickly from my problems last week, so I can still go to spring training. The Florida sun, and Cardinals baseball with first my buddies and then with my family should be the cure-all for what ails me. ( hey, a guy can wish, right?) I also want to send a big shout out and thank all that sent me "welcome back" notes yesterday. Remember, I'm only around now for one more day. Ok. thank you for reading the Pfennig, and I hope you have a Fantastico Friday!
EverBank World Markets
03-08-2013 11:52 AM