Metals turn in a stellar performance...
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In This Issue.

* Jobs and inflation data

* Manufacturing sector disappoints

* Gold and silver shine

* Most currencies rise

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

Metals turn in a stellar performance...

Good day.and welcome to Friday morning. The relative calm that we saw on Wednesday gave way to some strong moves yesterday in all of the asset classes, which especially holds true for metals. Things began the day on the slow side but really took off around lunch time. I was in search of the trigger but couldn't really pinpoint anything so I think it was a combination of several items that pushed traders over the line. Economic data, focus on a September taper, disappointing earnings for Wal-Mart, as well as the unrest in Egypt all had a hand in the cookie jar.

Since I mentioned economic data, let's take a look at the tape. The list was quite extensive but let's first check out the weekly figures. The number of initial claims dropped to 320k and was the lowest figure since October 2007 while the previous week was revised up to 335k. It's clear that firings or layoffs have been becoming less frequent, as evidenced by the six year low seen in the jobless claims, but is that due to a strong wave of new job hirings. If we look to the July jobs report, you can make the case it at least supports that view but I haven't seen where job creation is sitting on a six year high that would offset the six year low for initial claims.

The number of those receiving jobless benefits is still fluctuating around 3 million, but the latest report did fall below that mark. If we include the 1.55 million who have exhausted their traditional benefits or currently receiving emergency and extended benefits, we still have roughly 4.5 million receiving some type of employment related assistance. The better than expected outcome has traders betting on a better than expected August jobs report, which we'll see right before that all important Sept Fed meeting. Both the jobs report and the next item that I'll talk about, which is CPI, strengthened the case for tapering so the dollar actually increased during early trading.

The cost of living, also known as the consumer price index or CPI, increased for a third month in July as it matched the expected result of 0.2%. The annual headline inflation figure increased to 2%. As Chuck has explained several times, inflation impacts people differently as everyone's basket of goods will vary, but I just don't see how anyone who lives in the real world has only experienced 2% inflation. The government likes to concentrate on core inflation, which strips out food and energy costs, so the core July consumer inflation rate increased to 1.7% from 1.6%. I recently received my homeowner's insurance bill and I can tell you it increased a heck of a lot more than 1.7% or 2%.

Anyway, the Fed was making a big deal about inflation running too low, so the increase supported those looking for a September taper. And that's right about where taper friendly data ended and so did the dollar buying bias. The empire manufacturing report, which is the New York area, came in both lower than expected as well as lower than the previous reading but it did remain in positive territory. The same scenario can also be said about manufacturing in the Philly region as we saw that report come in lower but did manage to keep it's head above water.

While we're on the manufacturing sector, industrial production or factory output was flat during the month of July by coming in at 0.0% and was lower than the previous reading of 0.2%. The sister report, capacity utilization, measures the amount of plants currently in use and fell to 77.6%. We also saw the manufacturing production report fall for the first time in three months by coming in at -0.1% in July. Those three reports helped to turn the tide against the dollar as the contingent of traders hyping the taper talk had to make a quick exit. It still amazes me how the market has become so wishy washy and temperamental.

I'll quickly touch on the remaining data from yesterday, starting with the TIC flows. This report, which tracks foreign investment in US securities, used to hold a lot of weight but lost its relevance when the Fed began its massive bond buying program. Regardless, we saw foreigners sell a record amount of Treasuries in June with China shedding the most since December 2011. We also saw a consumer confidence report fall a bit while a homebuilder confidence index rose to the highest level since Nov 2005. We get housing starts and building permits for July this morning and then next week shapes up to be pretty bare in the data department that will primarily focus on more July housing data.

As I mentioned, the currency market turned on a dime as the euro was trading with a low 1.32 figure early in the morning but was back up in the mid 1.33 range when I left the office last night. The big story wasn't necessarily currencies, although it was a good day for many of them, but instead gold and silver stole the show. Silver gained over 5% while gold was up nearly 2.25% yesterday and to take it one step further, the returns so far this week were roughly 13.5% and 4% respectively. It sure is nice to finally see some tlc given to these assets, but we can attribute the gains to several factors.

First, the fall in equities has definitely helped but a weaker dollar, the unrest in Egypt, the rise in commodities as a whole, and breaking through some technical barriers all lent a hand. With gold breaking through a key resistance level of $1,350, the stage was set for a lot of black box trades that jumped the priced up to $1,370 in a hurry. Silver topped $23.19, which was the highest price since May 22, and has risen 24% from the nearly three year low on June 27. I was very surprised as to how fast the metals prices changed course from some relatively large losses in the morning to those lofty levels in the afternoon.

The currency earning the gold star yesterday was the Swiss franc as it appreciated just over 1%. The euro had a good day so the success of the franc wasn't totally self fulfilling but we did get a report that showed the Swiss current account surplus for 2012 increased to 66 billion, or 11% of GDP. Since I mentioned the euro, I saw a report where the German chamber of commerce believes that Germany could surpass the US as the world's second biggest exporter after China. The pound sterling also finished the day on the winning end and rose into the 1.56 handle after July retail sales increased more than expected. The Mexican peso came in last place as thoughts that lower US stimulus will lead to a slower economy and the Brazilian real got knocked down to a four year low of 2.35. The big question remains as to when the government says enough.

As I came in this morning, the lofty levels we saw yesterday afternoon have remained intact for the most part as gold is sitting on $1,365 and silver on $22.90. Not that it will have an impact on the currency since its pegged to the US dollar, but Hong Kong GDP rose more than expected in the second quarter and contributed to the government increased growth estimates this year to 2.5%-3.5% from the previous forecast of 1.5%-3.5% in May. We also saw the measure of eurozone exports increase for the first time in three months as it rose 3% in June while July inflation held steady at 1.6%. Other than that, housing data due this morning will get the day started.

For What It's Worth.U.S. Treasury yield hits highest level since 2011. The 10-year Treasury yield has reached a two-year high, as traders speculate positive economic reports will lead the Federal Reserve will phase out quantitative easing earlier than expected. The 10-year yield hit an intraday high of 2.819% on Thursday, according to Tradeweb. I just wonder if the Fed members are beginning feel the heat from these higher yields.

To recap.The dollar started the day on the rise but that quickly reversed direction and ended the day in the dog house. The improved weekly jobless number and marginally higher inflation supported a September taper while the slower industrial and manufacturing numbers poured cold water on those thoughts. July housing data will take over today's data dump as well as dominating next week's sparse schedule. Gold and silver stole the show by putting together some impressive gains while most currencies finished in positive territory. The Swiss franc and pound sterling led the way while the Brazilian real and Mexican peso struggled.

Currencies today 8/16/13. American Style: A$ .9177, kiwi .8079, C$ .9682, euro 1.3342, sterling 1.5641, Swiss $1.0794, . European Style: rand 9.9909, krone 5.9122, SEK 6.5204, forint 224.98, zloty 3.1678, koruna 19.3616, RUB 32.9212, yen 97.53, sing 1.2702, HKD 7.7542, INR 61.7063, China 6.1665, pesos 12.8345, BRL 2.3407, Dollar Index 81.24, Oil $107.50, 10-year 2.78%, Silver $22.85, Platinum $1,521.70, Palladium $756.65, and Gold. $1,364.45

That's it for today.Chuck will be back in action on Monday so at least you have that to look forward to. I'm going on my first family vacation this weekend to the Lake of the Ozarks, which is about 3 hours away from St. Louis, so I'm looking forward to the closing bell. Actually, my wife and daughter already made the drive yesterday morning and then I'll meet up with them this afternoon, so it was just me and the dog last night. We have a yellow lab who just loves to pick up anything and everything and drop it at your feet with hopes it gets tossed so that she can chase it. With nobody else to keep her company, I kept getting her favorite toys dropped in my lap while I was trying to gather my Pfennig thoughts. Well, if you haven't had a chance, take a minute and check out that new MarketSafe CD. That's it for me today, so until next time, Have a Great Day!

Mike Meyer
Assistant Vice President
EverBank World Markets

Posted 08-16-2013 12:50 PM by Chuck Butler