China's Economy Continues To Gain Momentum.
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In This Issue.

* Euros & Gold rally.

* Draghi doesn't sound so dovish.

* Kiwi drops on RBNZ / Treasury news.

* ADP report shows slow job growth.

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

China's Economy Continues To Gain Momentum.

Good day. And a Tub Thumpin' Thursday to you! Day 3 of the PS. The Congressional leaders met at the White House yesterday with the President, but there was no compromise on either side, and so we continue to see locked doors, gates, and check printing machines. I heard a real funny, to me that is, about who's 4 years of Presidency saw the longest Gov't Shutdown. So, I'll just let you decide who to fill in the blank with. That way, everyone has a different person they would put in and they can make the joke their own!

We had two big movers yesterday in the non-dollar arena. Gold & euros. Recall a month or so ago, I lamented that Gold & euros, both anti-dollar assets, kept moving in opposite directions? Well, that changed yesterday, So, let's start with euros, which back in "the day" used to be what I led every letter off with, given it was quickly becoming the poster child for diversification. But that all changed one day, when the markets decided that Greece couldn't pay its bills and wondered why they were borrowing money at the same interest rate as Germany.

3 years have now passed under the bridge, and the euro is still standing. Yes, it did appear to be receiving a standing 8-count, but all the time it remained the offset currency to the dollar, and I'll say this once again, as I've said it 100 times before. With all the negativity toward the euro the currency remained stronger than the dollar. What does that tell you about the dollar?

So. The euro climbed above 1.36 yesterday. That's almost a full 5-cent rise from where the euro traded just a month ago, and back then, I was happy that the euro had risen to 1.31! OK. I got my days all mixed up yesterday when I said the European Central Bank (ECB) was going to meet "tomorrow". They met yesterday. UGH! But, what I told you about what I thought ECB President, Draghi, would do with interest rates (unchanged) was bang on, but. he surprised us a little in the press conference later.

The euro got some lift from the news that Berlusconi had done an about face and pledged his party's support to the Italian PM Letta, who then won a lower house confidence vote. All this parliamentary stuff gives me a rash folks, so let's move along. The other thing to think about that happened in the ECB meeting and following press conference was the fact that ECB President, Draghi, just didn't sound as dovish as I wrote that he would be yesterday. While still maintaining his stance that "interest rates will remain at present or lower levels for an extended period of time", he had no sound of urgency in his voice or words. So apparently the uptick in the cyclical growth of the Eurozone is filtering into his thoughts. But he is wise not to get giddy about it, or abandon his accommodation to the economy, the Eurozone economy is on an uptick, but certainly not cooking with gas at this time.

And so. the euro rose to 1.36. Remember back in the dark days for the Eurozone, when I would write about the "relative calm" that was beginning to be cast over the Eurozone? I saw this, if it could continue, as something that would be positive for the euro going forward. I have to say that the euro has outperformed my expectations.

OK. The other "anti-dollar asset", Gold, saw most of its takedown from the previous day, reversed. There were calls by a Fed Head that the Tapering would not begin until 2014. And that really got Gold going. Yesterday that is. Today, Gold is back to getting taken down. These daily swings are driving me nuts. But, what do you expect when you have two forces beating against each other. You have the Physical Gold buyers driving the price up, and you have the paper Gold price manipulators pushing it down. As I said last week, I've risen the white flag on this, and decided to not get all caught up in the price, and to just be happy with my store of wealth. Don't worry, be happy, right?

The usual suspects that join in when the euro rallies are at it again. Norway, Sweden, Switzerland, Poland, Hungary, Czech Republic, and others of smaller nature, all have currencies that are gaining VS the dollar this morning.. The Aussie dollar is flat on the day, but the New Zealand dollar (kiwi) is down almost ½--cent this morning, so let's look at what's going on there!

OK. From what I read, it didn't take much to push kiwi down last night. There were some papers released to the public from the Treasury, regarding interest rate decisions. "the current single-decision-maker approach poses risks, such as a greater risk of poor judgment by a future governor than with a committee." I guess the Treasury is looking at the FOMC and thinking that it's a far better way to decide interest rates than to just have the RBNZ Gov. do it.

And judging from the way kiwi reacted to the news, I don't think the markets like that idea one iota. Nor should they, in my opinion. Sure I've banged on current RBNZ Gov. Wheeler, and former Gov. Bollard whenever they would say things that a Central Bank Gov. shouldn't be saying, according to Chuck's book on Central Banking! But, as far as I can tell, their system of deciding interest rates has worked just fine. Why upset the applecart now?

The ratings agency, Moodys, lowered Brazil's sovereign rating outlook to Stable yesterday, from positive. Moodys believes that Brazil has a deteriorating debt and investment ratio, and that there is evidence that the Brazilian economy is slowing down. Right now, Brazil is forecast to grow 2.5% this year, which for a country like Brazil is not very good. But it's better than a slap in the face with a wet fish! And something that obviously hasn't kept the Brazilian Central Bank (BCB) from hiking rates! Speaking of which, I do believe there are a couple more rate hikes to come from the BCB. The return to the rate hike cycle has really underpinned the beaten and beleaguered real.

But don't forget the Fed's no taper decision. That has gone a very long way to help the Emerging Markets from the deep dark abyss they had fallen into. I would think that the U.S. PS is going to eventually weigh on the Emerging Markets, but for now, these Markets are looking at the shutdown as a good thing, for it pretty much puts into concrete the call that the PS will mean Quantitative Easing / QE will continue. No tapering is manna from heaven for the Emerging Markets. So, the PS (remember it's the Partial Shutdown) is beginning to weigh on the markets. I have to say that up to now the markets appear to be not interested in the whole thing. Maybe they've taken on Chuck's view, in that I'm more worried about the Gov't starting back up! HA! I think that this PS is beginning to weigh on everyone's minds. Stress is something you need to get rid of in your life, before it's too late. Trust me, I know! So, I'll give you a little humor from Craig Ferguson to help you with your Shutdown Stress. here's Craig.

"At least here in America, crucial agencies like the U.S. Border Patrol are still on the job. That's a good thing. The last thing we need is an influx of Canadians, with their politeness and a government that's open every day."

OK. Back to me! The other day I wrote briefly about the pound sterling's recent rally, and how it had gotten some legs to run with from the comments by new Bank of England (BOE) Gov. Carney. Well, I think I pretty much said between the lines what I thought about sterling's rally, but if you didn't get it, let me come out in the open and say it. I think it's overdone! OK, that's my opinion, and I could be wrong, but I see now that the boys and girls over at Morgan Stanley, with their large resources and research dept, agree. Let's listen in. "Sterling is starting to look a little more over-extended. There are some longer-term risk factors that could come back and put sterling back under some pressure." - Morgan Stanley research team.

I'm sure someone there read the Pfennig, and said, "Hey, we should look at this sterling rally a little more closely" Yeah, right Chuck! And your first wife was a young Elizabeth Taylor, yeah, that's the ticket!

Some more good economic news from China last night folks. The Chinese Services Index increased to 55.4 in September from 53.9 in August. This index is just like the manufacturing indexes around the world that use 50 as the line in the sand between contraction and expansion. So, anything above 50 says the sector is expanding. China has really turned things around, and without using their crutch.

You know what I'm talking about here, right? The Chinese crutch is interjecting their treasure chest of reserves into a slowing sector like they've done so many times in the past. But the Chinese leaders said to the businesses in China, figure it out on your own. And they apparently did! A good sign for a country trying to remove the shackles of a closed economy.

So, I told you that the extraordinary measures that the U.S. Treasury Sec. has been using to keep us from hitting the Debt Ceiling are set to run out on October 17th. But, there's a chance that we could reach the finish line before October 17th. You see we have a HUGE Treasury auction that will settle on October 15th.. Uh-Oh. what happens if the Treasury runs out of borrowing capacity when the auctions settle? You see, foreign interest in the auctions dries up during fiscal debates in the U.S. and since foreign participation in the auctions has already declined in the past couple of months, we could well see a major problem on the 15th.

This is going to be a very interesting month, eh? OK. let's head to the Big Finish. are you ready? Yes I'm ready.

The U.S. data cupboard will probably not have much for us today, but we could see the Challenger Job Cuts for September. Yesterday, I made a big deal out of the Jobs Jamboree not printing, I forgot to tell you about the ADP report! UGH! Well, the ADP Employment report for September showed that 166,000 jobs were added (180,000 was forecast). Last month's number was revised downward by nearly 20,000 jobs to 159,000. Again. not strong enough numbers to get this economy moving.

For What It's Worth. Thought I would put the PS into perspective given the Big Kahuna is the Debt Ceiling stuff. Here's a snippet of a story that appeared on www.thehill.com

"The Treasury Department estimates the government will exhaust its borrowing capacity by Oct. 17, which is just three weeks away.

Lobbyists have been pushing Congress to raise the debt ceiling without drama or delay, but say the chances of that happening are shrinking with every passing hour.

"The [continuing resolution] is the junior varsity issue, while the debt ceiling is the varsity issue regarding the long-term impact on the economy," said Scott Talbott, senior vice president for public policy for the Financial Services Roundtable, which represents big names on Wall Street.

"If the debt ceiling is not raised, we could see an increase in interest rates and a credit downgrade," Talbott said.

Chuck again... Yes... as I said, October is going to be an interesting month... And I don't think we're going to like it much... But to most people, including me, we figure this all makes good drama, and in the end, the Debt Ceiling will be raised... But it won't be raised on the shoulders of those in charge, it will be raised on the shoulders of our kids and grandkids...

To recap... Day 3 of the PS is happening, and so far, the dollar is seeing a bias to sell, but it isn't as if it's falling off a cliff. The euro and Gold were the big winners yesterday, with the euro climbing over 1.36, and Gold gaining back most of its losses from the previous day's takedown. Kiwi sees some weakness, and even though China is still on holiday, they released their Services Index and it increased in Sept, so the momentum is still intact with the Chinese economic recovery.

Currencies today 10/3/13... American Style: A$ .9385, kiwi .8285, C$ .9675, euro 1.3605, sterling 1.6205, Swiss $1.1090, ... European Style: rand 10.0665, krone 5.9660, SEK 6.3440, forint 217.36, zloty 3.0905, koruna 18.7835, RUB 32.12, yen 97.75, sing 1.2485, HKD 7.7545, INR 61.73, China 6.1480, pesos 13.15, BRL 2.1910, Dollar Index 79.85, Oil $103.74, 10-year 2.65%, Silver $21.59, Platinum $1,378.10, Palladium $715.03, and Gold... $1,307.81

That's it for today... Feeling much better today... Yesterday, I had strayed from my mantra, " I don't eat donuts" and ate two cake donuts, and within minutes, I began to feel better! Who knew? Donuts cure chemo stomach blues! HA! The Major League Playoffs start in earnest today, with my beloved Cardinals attempting to dodge the raindrops here in St. Louis this afternoon. Little Braden Charles was at the house yesterday, and he loves to "dance". I was cracking up when he was joined in the "dancing" by his cousin Everett... About the only time those two aren't taking toys from each other and screaming, "mine"! HA! I have a new "shine in my eye" today... The young lady that made my shell met me at the door yesterday, and called me by name (probably was their only patient yesterday!) and we had a delightful conversation while she took care of my shell... She was the one that made my shell, hand painting it right there in front of me, so I could see the whole process... Pretty amazing! OK... Go Cards... and go have a Tub Thumpin' Thursday!

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





Posted 10-03-2013 6:21 PM by Chuck Butler