U.S. Manufacturing On The Rise...
Daily Pfennig

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In This Issue..

* Risk Assets Get Sold!             
* ISM hits 52.9!            
* Aussie GDP rises!                                
* China leading the way!                                                 

And Now... Today's Pfennig!

U.S. Manufacturing On The Rise...                       

Good day... And a Wonderful Wednesday to you! Well, all that back and forth between rally and sell off for the currencies came to an abrupt halt yesterday, when the dollar bulls went on a rampage. There was some very strong economic data to help the move, but the real thing that brought the currencies to their knees was the stock sell off of 185 points...

Get this... Now we all know that the risk assets of stocks, commodities, and currencies have all been tied together for some time now... So, I was surprised to see a story titled: "Currency Markets Taken For A Ride By Stocks" Hmmm, maybe this person just woke up from a 9-month coma, eh? Any way, that doesn't matter, it's just another opinion that coincides with mine!

I had a read send me a note yesterday asking me to explain my lingo when talking about "handles"... OK... A quick run-though of this... It's an old Bond trading term, that I carried over from bond trading to currencies. So... A "handle" is the whole number... So, if Norwegian krone is trading at 6.0350... "6" is a serious number... It's all the fingers on your hand plus your thumber... No, Wait! "6" is the "handle"... Hope that helps!

OK... Back to currencies... One has to wonder what's going on these days... I mean for over 9 months, whenever there was strong data in the U.S. the dollar would get sold... But now, that's all changed... And, since when does a rise in manufacturing lead to a 185 point stock sell off? It's crazy out there folks! There's nothing that's trading on fundamentals...

The strong data I'm talking about is the ISM (Manufacturing) Index that printed for August yesterday... For the first time in 19 months, the Index rose above the 50 level to 52.9! That's a good performance for the manufacturing sector, and one that will probably bring economists, and politicians to claim the recession to be over... Well, that may be... FOR NOW! Double dipping... It's in our future, I can feel it! And don't forget what I explained to you yesterday regarding the weaker dollar playing a big part in Manufacturing's rise....

A reader that's a Manufacturer sent me a note... "Regarding the uptick in the manufacturing index: from where I'm sitting I don't see it as an increase in demand for our products, but rather a re-building of inventories from an oversold position. We've seen a bounce off the bottom in May that has been carried through this month but it appears to be leveling off."

So... Once again, this is the kind of thing I believe to be "real economics"... Real stuff! Not the surveys, not the hedonic adjustments, not the cooking of books... Real Stuff!

And, before I go on to other things... I normally look at the employment component of the ISM to give me an indication of what the Jobs Jamboree will show, which prints on Friday this week. The ISM employment component showed a job loss of -225,000... So, we're still losing jobs...

OK, back at the currencies ranch, the dollar is beating up on the currencies, but what's that I see? Ahhh... It's the Aussie dollar (A$) mounting a rally in the face of this dollar strength! Let's go to the tape to find out what's going on there!

2nd QTR GDP in Australia printed stronger than forecast at +.6%, (VS +.3% forecast) and stronger than the 1st QTR print of +.4%... This uptick has really brought the rate hike campers back out into the streets. Recall, that a couple of months ago, I wrote about how Australia might end up being the first to raise rates after the financial meltdown of 2008... (It's neck and neck between Australia and Norway)... The thought then that the rate hike would come in the 1st QTR of 2010... But there are those now that are thinking the first rate hike could come this year! October's Reserve Bank of Australia meeting is being targeted now... Put this in you calendar to come back to...

Speaking of Norway... The rate hike campers here had to take a step back yesterday after Norway's PMI (Manufacturing Index) was a disappointing print. Norwegian PMI, which just a month ago was knocking on the 50 number, at 49.7, fell back to 42.3 In August... UGH! So, the Norwegian krone, which had just Monday, traded with a 5 handle, got smoked on this print.... But, I don't think this is something that we should get our undies in a bunch about. This is just one print... And probably only delays Norway's rate hike by a month or two...

Recall on Monday this week I told you that we would have all kinds o' data this week, and all over the world. Well... In keeping with that... China too, printed their Manufacturing Index report last night. The state-sanctioned China Federation of Logistics and Purchasing said its purchasing managers index (manufacturing) rose to 54 from July's 53.3 on a 100-point scale where numbers above 50 show activity expanding. It marked the sixth month of expansion.

So... Just like I told you a couple of months ago... China was going to be the first to exit the economic mess / slowdown / recession / depression, depending on where you live... This marks 6 consecutive months of prints above 50...

I watched Gold get sold yesterday too, and wondered to myself, or maybe it was out loud, our little Christine, who sits next to me, has to listen to all my comments about things all day... I'm sure, she "heard" me wondering to myself! Any ways... What I was wondering about was the price of Gold and how it seemed to be stuck in the $950 range... I did see recently where the Central Banks around the world had signed a new agreement on the amount of Gold that they sell... The good news for Gold was that the Central Bankers agreed on a smaller amount as their maximum amount of Gold that can be sold each year...

Imagine if you will for a moment, where the price of Gold would be today, if those Central Banks hadn't dumped Gold on the markets for the last 9 years? The fact that Gold has risen from $250 to $950, in the face of these Central Bank sales is amazing! And now... The amount the Central Banks can dump on the markets each year is smaller... What do you think that means for the price of Gold? I know what I think it means!

Talk about getting "dumped" that's what happened to the Brazilian real yesterday... Yes, most of the currencies sold off... But real was really sold off! That makes some sense in that real had out performed most currencies this year, and therefore, the selling, or profit taking would be on a larger scale... I think this selling was overdone though, and I would look for the real to make an attempt to come back today...

Today, the data cupboard here in the U.S. has the ADP Employment report, which is kind of a wild hair, report that hardly ever gives a good indication of what to expect in the Jobs Jamboree... But just for the record the forecast for the ADP report is for job losses of -250,000... Which is close enough for Gov't work to the ISM employment component, I talked about above.

We'll also see the stupid Productivity report for 2nd QTR... I've explained why I think this report is stupid in the past, so I won't spend a lot of time on that.

Factory Orders is the only "real" piece of data that I care to look at this morning... July's Factory Orders will print and most likely show an increase of 2.2%...

Then later this afternoon, the minutes of the latest FOMC meeting (8/12) will print. Hmmm... You never know what these minutes might reveal, I've always maintained that if they were the "real" minutes we would see things like... B-10, By Joe, You've sunk my Battleship! HA!

And on that note... I'll head to the Big Finish...

Currencies today 9/2/09: A$ .8325, kiwi .6755, C$ .9065, euro 1.4235, sterling 1.6220, Swiss .9385, rand 7.86, krone 6.0950, SEK 7.2320, forint 193.75, zloty 2.9240, koruna 18, RUB 31.96, yen 92.60, sing 1.4430, HKD 7.7510, INR 48.98, China 6.8310, pesos 13.63, BRL 1.9140, dollar index 78.59, Oil $68.74, 10-year 3.37%, Silver $14.95, and Gold... $956.15

That's it for today... Well... I'm happy you, dear reader, are still reading... I had a guy rant at me yesterday regarding my talking about the Cardinals and Tigers and my family here... HEY! It's my letter! My suggestion... Simply stop reading at the Currency Round-up! So... That sure was a nice win last night for my beloved Cardinals... In a case of "pick your poison" the Brewers intentionally walked Albert Pujols, only to have Matt Holiday hit a home-run! WOW! This is becoming a special season for the Cardinals, for sure! Still battling pain and stiffness in my left knee, I thought the steroids that they shot in the knee joint were supposed to have begun to work by now... Oh well, ice and more ice helps... We had our draft for our Fantasy Football league.. This is silly stuff, but it's interesting at times! OK... Let's get working on what we need to do to make this a Wonderful Wednesday!

Chuck Butler
EverBank World Markets

Posted 09-02-2009 9:18 AM by Chuck Butler