Dollar buying frenzy...
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In This Issue.

* Jobless claims fall

* Manufacturing moon shot

* BOE and ECB share notes

* Rough day for currencies

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

Dollar buying frenzy...

Good day.and welcome to Friday morning. This will conclude my tour of duty, at least for the next couple of weeks, so Chris will be at master controls all of next week. I was exchanging text messages with him yesterday and it sounded like he had all kinds of airport issues with plane delays and cancellations. I feel like that I've been hearing more and more people dealing with that kind of stuff, so it has me wondering if this is the new norm for air travel. Anyway, let's skip ahead and get to the meat and potatoes.

Yesterday was all about the US dollar. It began the day on an upswing and just kept adding steam as the day progressed. It was all kicked into high gear by the results of US data. Of the several reports from yesterday, there were really two that grabbed everybody's attention. The weekly jobless numbers yielded a positive surprise as initial jobless claims fell to 326k, down from the previous reading of 345k, and marked the lowest figure since January 2008. I've been reading that July can be a pretty volatile month since car manufacturers typically shut down for a few weeks to re-tool for the new model year.

With that said, several automakers have either shortened their re-tooling period or have pushed it down the line, so some economists have suggested this may have thrown off the government model used to calculate seasonal adjustments. The continuing claims number came in a bit lower but those receiving traditional as well as extended benefits still remains above 4.5 million. The four week moving average for new claims, which at least smooths out some of the volatility, also improved by falling to just over 341k.

The report that really had the dollar bulls dancing in the streets was the July manufacturing report, which absolutely blew both the June reading as well as the expected result right out of the water. The all important national ISM index increased to 55.4 and was higher than last month's 50.9 reading as well as the July estimate of 52.0. Its certainly a good start for the third quarter when manufacturing increases by the most in two years. If you recall, a reading above 50 indicates expansion while a reading below 50 indicates contraction.

Several of the industrial components surpassed some milestones. The gauge of new orders rose to the highest since April 2011 while production increased to the highest figure since May 2004. The measure of factory employment increased as well to just over a one year high. Just to further vindicate July manufacturing, another report via Markit Economics improved to 53.7. In a separate report, however, the Commerce Department said construction spending in the US unexpectedly fell in June for the first time in three months.

It's going to be interesting to see if this is the tip of the iceberg for the economic upswing in the second half of the year or if we see it begin to fizzle out. The markets yesterday took the data and used the eyeball test to see if this would support tapering. Obviously the answer is yes so dollars were bought left and right. For as busy as this week was in the data department, next week is about as barren as we can get. The only reports that would hold any significance would be the July ISM non-manufacturing index and then the weekly jobless numbers on Thursday, so it's going to be up to Fed head chatter and foreign data to move the markets.

As I mentioned yesterday, the ECB met and did keep rates on hold at 0.5%. Not that a rate cut would really have a significant impact, but some were still leaving the open chance we would see a cut. Recent data has shown some signs of life and some baby steps toward pulling out of a record recession. For example, the Markit manufacturing report for July increased over 50 for the first time since July 2011. Anyway, nothing really new materialized. Policy makers said economic indicators at this point would signal that the worst is behind us, but definitely not in the clear just yet. They also said monetary policy won't be tightened anytime soon, which I can safely say that goes without saying.

Again, we weren't expecting any surprises from the ECB so let's see what the Bank of England had to say. I think the BOE, ECB, and the Fed shared notes because all three pretty much said the same thing. Some economists were calling for more liquidity measures to help boost lending, but the BOE made no changes and created no waves in the market. This was governor Mark Carney's second meeting but we'll see his first public comments on the economy next Wednesday. It's also expected that he will provide some insight as to how long rates may remain this low as he is wanting to bring guidance into the BOE. In other words, he wants to be able to tell the markets that he would expect rates to remain this low until a given time table, which is what he did with the Bank of Canada.

It actually turned out to be an ugly day for all currencies as there wasn't even one that finished the day in positive territory. Even the renminbi ended with a slight loss. While we're talking about China, the official government PMI report increased to 50.3 in July. Just to clarify, this report measures factory output. The HSBC PMI report last week fell to an 11 month low of 47.7, so we have some conflicting information. Part of the discrepancy is due to the gov't report focusing on large and state owned firms while the HSBC report concentrates on smaller companies.

Whatever the case, manufacturing in China still remains fragile but the government has said several times that it will act if needed to stimulate activity. Other than that, the other currencies finished the day with at least 0.5% losses while the Japanese yen turned in the worst performance by dropping over 1.5%. We didn't have any other reports abroad that would have caused such a selloff, so it was merely a matter of piling into dollars. On a side note, it wasn't treasuries because the 10 year bond shot up to 2.70 from its open yesterday of 2.58. This is one of the unwanted consequences of good data feeding into the taper talk which sparks higher rates.

As I came in this morning, the markets are on hold for the big July jobs report. We won't have to wait long since we'll see the results first thing this morning but the dollar is up this morning as we're expected to see a positive report. If the ADP was any indication, we may get another day of data running ahead of initial estimates and the markets tripping over themselves to buy dollars on the thought of tapering. But again, results of US data will continue holding the hammer until the Fed gives us a clearer picture.

For What Its Worth. I pulled the following from a publication written by our friend, John Mauldin. I thought it was well presented and wanted to share:

The jobless nature of the recovery is particularly unsettling. In June, the government's Household Survey reported that since the start of the year, the number of people with jobs increased by 753,000 - but there are jobs and then there are "jobs." No fewer than 557,000 of these positions were only part-time. The June survey reported that in June full-time jobs declined by 240,000, while part-time jobs soared 360,000 and have now reached an all-time high of 28,059,000 - three million more part-time positions than when the recession began at the end of 2007.

That's just for starters. The survey includes part-time workers who want full-time work but can't get it, as well as those who want to work but have stopped looking. That puts the real unemployment rate for June at 14.3%, up from 13.8% in May.

In spite of job gains in the first half of 2013, the downward pressure on the standard of living actually intensified. Approximately three quarters of the increases in jobs were in four of the lowest paying industries - retail trade; the temporary help services component of professional and business services; hospitality and leisure; and the nursing and residential care facilities component of the medical category. Part time jobs averaged increases of 93,000 per month in the first half of 2013, while full time jobs averaged increases of only 22,000 per month. Full time employment as a percentage of the adult population is currently 47%, which is near the lows of the last three decades.

To recap.The dollar began the day in control and finished the day even stronger. The weekly jobless claims fell to the lowest level since January 2008 while the national ISM manufacturing report for July overachieved. Both reports kicked the dollar buying into high gear. The BOE and ECB both met yesterday and kept everything status quo, which was expected. Every single major currency finished the day in the red, including the Chinese renminbi even though a manufacturing report showed some improvement. The Japanese yen finished in last place with over a 1.5% loss.

Currencies today 8/02/13. American Style: A$ .8896, kiwi .7870, C$ .9620, euro 1.3210, sterling 1.5152, Swiss $1.0667, . European Style: rand 10.0125, krone 5.96, SEK 6.6441, forint 227.19, zloty 3.2213, koruna 19.620, RUB 33.0860, yen 99.78, sing 1.2757, HKD 7.7566, INR 61.10, China 6.1817, pesos 12.8515, BRL 2.3040, Dollar Index 82.43, Oil $107.68, 10-year 2.74%, Silver $19.45, Platinum $1,423.44, Palladium $728.60, and Gold. $1,290.30

That's it for today.It was a very long week for me so I'm glad the weekend is here so that I can recoup a little bit and regain my sanity. I want to also thank my wife, Sara, for doing all of the heavy lifting and picking up my slack at home while I've been putting in some long hours this week. It was nice to see the Cardinals busted out of their losing streak last night, but they did give up first place to the Pirates in the process. I heard Tim talking about fantasy football yesterday afternoon, so I'll need to find one of those cheat sheets to help me with the draft. Well, thanks for hanging with me this week and like I said, Chris will be at it on Monday. So until next time, Have a Great Day!

Mike Meyer
Assistant Vice President
EverBank World Markets

Posted 08-02-2013 11:29 AM by Chuck Butler
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