Manufacturing Reports Send Currencies Lower.
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In This Issue.

* German manufacturing slips.

* Chinese manufacturing slips.

* Markets want Sweden & Norway to cut rates.

* Moving the goal posts again in the U.S..

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

Manufacturing Reports Send Currencies Lower.

Good day. And a Tom Terrific Tuesday to you! Well, it looks like it's back to one of those Risk Off Days today. UGH! Not that one day of trading makes a trend, it's just that I thought we had passed the days of Risk On and Off, where all the risk asset classes of Stocks, Currencies and Commodities get traded together, forgetting about fundamentals. Although it was a report from the Eurozone, and another from China that sent the risk assets to the woodshed to begin with.

OK. So, the markets continue to be "surprised" by reports that show the Eurozone economy slowing down, as if, the Eurozone hasn't undergone huge spending cuts that should slowdown an economy! I find this somewhat amusing, in that, these are the same guys that rewarded the euro when the austerity plans were announced, but now see the consequences of such austerity, and they sell the euro..

So, the euro has fallen below 1.30 again , but is within spittin' distance of that figure, so at least the pounding on the euro hasn't been too bad, yet. The NY markets have yet to arrive and see the color of the manufacturing index in Germany (the Eurozone's largest economy), which fell below the 50 level, which indicates the manufacturing in Germany is contracting. Otherwise the rest of the news from the Eurozone is constructive. Italian bond yields rallied to a record low level, along with Irish bonds.

Here's the skinny on this folks. Recall last week, Bundesbank President, Weidmann, threw a cat among the pigeons by suggesting that the European Central Bank (ECB) may have to cut rates. Well, this manufacturing report may just be the straw that stirs the drink that contains a rate cut. And when a country is cutting rates, bonds rally. So, just the thought that rates will have to come down, was enough to push yields in Italian and Irish bonds to record lows.

Yes. as a bond trader, from many, many years ago. We would get all lathered up, when things in the U.S. would look weak, for that would mean Treasuries would rally.. Hmmm. as I look at the screens this morning, I see that the U.S. 10-year Treasury's yield has fallen to 1.66%... which in the "old days" would mean things in the U.S. look very weak. Well, that may be, but in today's trading, it's more about "flight to safety". Yes, that seems as strange as the weather to me, but. it is what it is, right? So we carry on despite the shortcomings of bond traders! HA!

Well. As I said above, China also printed a weaker than expected manufacturing index report. This report was from HSBC. You might recall, unless you skipped class the day I explained this, that in China there are two Manufacturing Index reports that print. One by the Gov't, and one by HSBC (Hong Kong Shanghai Banking Corp) and that the Gov't report usually contains more "fluff". Well, the HSBC report showed that the index number fell from 51.6 in March to 50.5 this month. Still above the line in the sand at 50, but showing signs of weakness.

So, the global growth campers headed for higher ground, as the flood waters of slower growth swelled around them. Speaking of flood waters. it's that time of year again, when the melting snow up north, and the April showers that I've been complaining about, push the rivers to the top of the banks and over. My little river city has one of its main arteries cut off by flood waters right now, and some cities north of us on the Mississippi river are having a rough go of it.

Sorry for going off on that tangent. I get to typing, and the next thing I know, I've given a river stage report! UGH! Anyway, the thing I was getting at, is the weakness in the Chinese report will really play hell with the global growth currencies and the Emerging Market currencies. At least today it will. That means the Aussie dollar (A$), which I call the proxy for global growth, is weaker again this morning. I sure hope that Aussie Treasurer, Swan, is happy that the grenade he threw from left field, at the A$ is doing what he wanted it to do. Weaken the A$...

I could get on my soapbox and stomp my feet, and pound my fist on the podium, and scream as loud as I can about the mental giants that these Central Bankers, and Treasurers just keep pumping out for us to have to deal with! But I won't. HA!

In Norway, the country that has the krone, which has acted as a safe haven from the Eurozone, and Swiss messes for over a year now, reports show that inflation is being held in check, and that has given the markets the freedom to assume the Norges Bank (Norway's Central Bank) will cut rates soon. The Norges Bank Gov. Olsen, has held Norway's internal rate steady at 1.5% for over a year now. He has done so to combat the housing bubble going on in Norway. But, now that inflation is dropping, he may be inclined to cut rates, and that is weighing heavily on the krone right now.

Norwegian exporters have complained about the krone's strength for some time now, and they'll be happy to see it weaken. The hope, as far as I'm concerned, would be that the markets pricing in a rate cut, is all that's needed to get the exporters off the Central Bank's back, and reduce their calls for a rate cut. That would be better as far as I'm concerned, as I explained above, the housing bubble is for real here, and a rate cut could be the pin that pops that bubble.

Speculation that the Riksbank (Sweden's Central Bank) has also got the krona trading weaker this morning. I think that in the end, this will all be a case of sell the rumor, buy the fact, as the markets will sell the currencies on rate cut talk, but most likely will buy the currency if the rate cut is done, as this will be seen as promoting growth. I know, I know, this is all back-a-wards from what I learned many years ago about the valuation tools of a currency.. But. once the markets decide this is how things will be, you have to go with it.

Here in the U.S. things continue to get pretty hazy regarding the nascent recovery. The reports I see, continue to show rot on the economy's vine, but, stocks keep pushing the envelope and the Fed Heads keep talking about ending Quantitative Easing (QE). Of course, I'm from Missouri, and I'll need to be shown the Fed ending QE. But as long as the Fed Heads keep talking about it, everyone (except me) begins to get all lathered up about the economy.

Take yesterday's data reports. The Chicago Fed Index (manufacturing) was negative in March, and Existing Home Sales surprised with a reading that was below the previous month's number of units. The first QTR's numbers for Existing Home Sales were the highest quarterly level of existing home sales since the 4th QTR of 2009. But, we need to keep an eye on the slippage we saw in March.

Today, we get New Home Sales data. and that's about it, data wise. Just not a lot to look to for direction, which means the dollar, in my opinion which could be wrong, will continue to hold the bias to buy, as no data here means no chance for bad data, and we've already seen bad data from Germany and China this morning.

Gold is being spent this morning for the first time in a week. It is down $2 and change, but was down $15 when I came in this morning. Yesterday's early morning gains were not held as the day went on, and it looked more like profit taking than anything dastardly. One thing that I keep coming back to with Gold is how it is viewed here in the U.S. VS how it is viewed throughout the world. Here in the U.S. most (not me, and probably you) view Gold as simply a commodity, that goes up and down in price and trade it like they do a pound of sugar. But worldwide, (& me) it is viewed as a store of wealth. And that store of wealth should be added to with any opportunity to buy it whether or not it is cheap.. If it's cheap then that's just a bonus. I would think that it would be far better for the rest of us here in the U.S. to look at Gold as they do around the world.

Then There Was This. I had a reader on the blog (www.dailypfennig.com) comment about how the U.S. is going to change the way it calculates GDP. does that smell fishy to you? Well, it does to me! So I had to check it out. and sure enough, the U.S. is going to change the way it calculates GDP. Their new calculation will add 3% to our GDP. Here's a snippet of that story found in the International Business Times.

"By this summer, the U.S. Bureau of Economic Analysis (BEA) will have completed a massive revision of current and historical data, adding billions of dollars worth of non-manufactured items, including royalties from movies, TV, books and music, as well as money spent on research and development. The U.S. will become the first country to take these so-called intangible assets into account.

For example, the cost of developing a new weapons system by a defense manufacturer will now be considered part of the country's economic output rather than just a corporate expense. Under the new paradigm, states with large amounts of defense-related R&D will see their GDP estimates grow considerably. New Mexico, for example, will see its GDP estimate shoot up 10 percent thanks to the considerable presence of military research going on there."

Chuck again. Here's my thought on this. yes. changing the goal posts if you can't score. That's our Gov't at work! back in the 90's they couldn't get interest rates low enough to spur the housing market, because inflation was too high, so. they changed the way they calculated CPI, and voila! Inflation was tamed, interest rates came down, and the housing bubble began.

This is similar, because GDP doesn't show economic growth currently, now how are you going to get people to go out and spend if they're not confident about the economy? I admit that while some of this stuff that's being added to GDP makes sense, most of it doesn't. to me that is!

To recap. It appears that it's going to be a return to the Risk Off Days today, as manufacturing reports from Germany and China show slippage in those respective economies, and global growth is taking a hit this morning. The markets are pushing the central banks of Norway and Sweden for rate cuts, and that talk has those two currencies weaker this morning. And Gold is being spent this morning for the first time in a week.

Currencies today 4/23/13. American Style: A$ $1.0255, kiwi .8405, C$ .9730, euro 1.2995, sterling 1.5255, Swiss $1.0635, . European Style: rand 9.24, krone 5.9045, SEK 6.6090, forint 230.80, zloty 3.1820, koruna 19.9380, RUB 31.69, yen 98.75, sing 1.2405, HKD 7.7645, INR 54.38, China 6.2360, pesos 12.28, BRL 2.0205, Dollar Index 82.92, Oil $88.32, 10-year 1.66%, Silver $23.05, and Gold. $1,421.60

That's it for today. It's just the boys at the house this week, so pizza and wings were the diner fare last night. Alex has Water Polo games every night the rest of the week, so, we'll be eating late. Alex must have gotten a break from his normal homework load last night, for he was playing his guitar. The first time I've heard him play in a while. All three grandkids were at the house when I got home yesterday. the decibel level goes sky high when they are there! But they are so darn cute. all of them! Cardinals win an exciting game in Washington last night. I watched the game on TV, and noticed that the Nationals fans came dressed to the game as empty seats! Where are their fans? Oh well. I guess when the weather warms up they'll show up. Speaking of showing up. Mike is here, so that means it's time to get this out the door! I hope you have a Tom Terrific Tuesday!

Chuck Butler
President
EverBank World Markets
1-800-926-4922
1-314-647-3837





Posted 04-23-2013 11:05 AM by Chuck Butler
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