Taking Their Frustrations Out On The Dollar.
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In This Issue.

* Currencies & metals rally.

* Big Ben disappoints the markets again.

* Oil price rise pushes petrol currencies higher.

* Sorting out The Sing dollar.

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

Taking Their Frustrations Out On The Dollar.

Good day. And a Tub Thumpin' Thursday to you! I turned the iPod on this morning the first song that played was Cat Stevens' song: Morning Has Broken. Now, how appropriate is that! I always put the iPod on "shuffle" so I never know what's coming up next. I always laugh when I walk away in the morning after Mike has come in, and I come back and something like Frank Sinatra or the Pet Shop Boys are playing. Not exactly stuff on Mike's hit parade!

Well. we settled down in the currencies and metals yesterday, after Tuesday's wild swings. Big Ben Bernanke was on the hot seat yesterday, as Ron Paul asked some questions that made the Fed Chairman squirm in his seat. I watched some of the proceedings, but then decided I had seen Big Ben not really answer the question that was asked of him enough, and decided to get back to work. The market gurus were still wishing and hoping and thinking and praying, planning and dreaming, each night that Big Ben would mention additional stimulus, but were disappointed once again. At least, this time, the didn't take their frustrations out on the risk assets. No. this time they took their frustrations out on the dollar!

I hate to beat on this subject so much, but one thing that really ticked me off yesterday during the testimony on the outlook for the economy was, the lawmakers kept asking Big Ben about his previous implementations of stimulus, and all he would say was that it was "productive" , but would never give examples of how "productive" they were. We, as Pfennig Readers all know what he meant by "productive". The dollar was sold, and stocks rose in value. Our Central Bank verified a couple of years ago that their main assignment was to prop up asset values.

OK. enough, Chuck! Can't you see the people want to move along, and not spend all morning on your problems with the Central Bank? Sorry. Let's see. Well, this morning, the currencies have added to their gains from yesterday. The euro is back to 1.23, and the Aussie dollar (A$) is trading with a $1.04 handle this morning!

We could see more gains today in the risk assets if the economic data that prints continues to be weak. The main piece today is the Weekly Initial Jobless Claims. This data has come front and center today because of last week's fall in the number of claims. I explained on Friday that apparently nobody in the media had noticed that the data was from the holiday shortened week, so it was bound to show a fall in the number of claims. So, today, we'll see if I was right. if I am right, the markets are going to jump on that "we need additional stimulus" bandwagon again, and that would send the dollar to the woodshed.

There is one piece of data today that normally gets pushed to the back of the closet, and that is the Philly Fed Index. This is one of those regional manufacturing indexes, that normally don't get much attention. and this one won't either by the masses. But here at my desk in St. Louis Mo. Home of the 11 time World Champion Cardinals, I came across something last month that was very interesting. And that is the relationship of the Philly Fed Index and the risk assets.

It appears to me from the graph I pulled, that the Philly Fed Index's performance dictates the performances of the risk assets. Take last month's print for an illustration. Last month the Philly Fed Index (PFI) printed a negative -16.6 and the risk assets performed very poorly, the euro fell 1%, the A$ fell 1.5%, stocks fell 2%, and oil fell 3.5%... Since then, these risk assets have recovered considerably. (except euros, which has other problems also weighing on it)

So, if this relationship holds true today, we could be in for some poor performances that hopefully would be offset by the markets wishing and hoping for more stimulus. I say that because the consensus for the PFI that will print this morning, is for a negative -8 figure. (better than last month, but still very weak). So, it could be a very interesting day. Traders will love the volatility, I will sit here and shake my head, for these knee jerk reactions to things drives me crazy!

While we're talking about economic data here in the U.S. Housing Starts yesterday printed strong for June, and June Capacity Utilization and Industrial Production printed OK. They didn't show the rot on the vine they showed last month. So, the hand basket the U.S. economy is in, isn't exactly going to hell right now. but, these tiny sparks of economic strength, will die out when the rest of the economy weighs too much on it.

Today, we'll see Leading Indicators for June. I expect them to turn negative. which will be a very good indicator that the economy is headed south. There will be no data prints tomorrow, so today is the last shot of data for the markets until next Monday, so, a lot of attention will be on today's prints.

Well. the euro was rallying this morning to 1.2320, and then the results of Spain's latest auction became a real drag on the euro, causing it to fall to 1.2270. But, has recovered back to 1.23, while I've been typing my fat fingers away here. Recall that about a week ago, I told you that German T-Bills were auctioned with a negative yield? Well. yesterday German 2-year notes also had a negative yield. That's absolutely crazy folks! The demand to own German debt by Europeans is very strong. Obviously my old line about how investors now "look at a return OF capital being more important than a return ON capital, holds true here, eh?

Besides being unlawful for them to do so. You can see why the Germans throw such a fit about issuing a Eurozone bond, as long as they can get such cheap financing, why would they want to have to pay much higher interest rates that would be assigned to a bond that included the peripheral countries like: Greece, Italy, Portugal and Spain. Club Med.

In Asia. the market gurus there are also hoping for additional stimulus, but not from the U.S. Fed, although they wouldn't mind see it come from there. No, here, they are looking to the Chinese to announce additional stimulus measures.

One of my fave currencies, and that's not a solicitation to buy it, it's just a statement of fact. The Singapore dollar (Sing $) continues to follow the Chinese renminbi/ yuan, but now that the renminbi / yuan is appreciating VS the dollar again (3 consecutive days this week) the Sing $, is pushing the envelope of what the Monetary Authority of Singapore (MAS), the people responsible for setting the trading bands for the Sing $, their tolerance for Sing $ strength. And with inflation under control in Singapore, it gives the MAS more room to maneuver the Sing $...

I don't think the MAS, who all central banks should follow, use the Sing $ as their main tool for keeping inflation under control. That's right, the MAS uses the exchange rate of the Sing $ rather than borrowing costs to conduct monetary policy, adjusting the trading bands that the Sing $ is allowed to move in. This all may sound complicated, but it's not. and the MAS has always been very transparent with their moves.

So.. having said all that. the Sing $ will appreciate, IF the Chinese renminbi/ yuan appreciates. Because right now, the trading band for the Sing $ is sloped to appreciation, but will be held back if the Chinese renminbi / yuan goes into hibernation again.

Speaking of pushing the envelope of appreciation. the Japanese yen is back in the 78 handle this morning. This has just got to tick the Japanese officials off to no end. They've tried everything in the book and some things outside of the book to get the yen weaker. It's just not happening on their time table!

The price of Oil has really rebounded this week, and trades with a $90 handle this morning. When the price of Oil moves like this, the petrol currencies of: Norway, Canada, Brazil, Russia, U.K. and even Mexico, perform better. For instance, the Bloomberg tells me that the Russian ruble has gained for 8 consecutive days, which is the longest winning streak for the ruble since December 2010, when it gained for 10 consecutive days.

The Canadian dollar / loonie also is seeing a boost from the rising price of Oil, as the loonie moves past 99-cents on its way back to parity! (maybe, just my opinion, I could be wrong!)

And Gold is up $14 this morning. That's a nice figure this morning. Silver is up 30-cents, so all around a good strong performance this morning for the metals. Now. we sit here and wait for the price of Gold to get taken down by the manipulators. it will happen, maybe not today, and not because they fear it to be too brazen, they have no fear of the regulators.

Then There Was This. I saw this on Reuters this morning. Another California city seeking bankruptcy protection (maybe). And yet, the media wants to focus on Greece? This stuff is going on here in the U.S. and our media doesn't cover it? But, somebody setting a building on fire in Greece is important to us.. Oh well. here's the story. Get ready for this kind of stuff to come to a city near you!

"The City of Compton, a city of 93,000 people located on the outskirts of Los Angeles, must decide by September 1 whether to seek bankruptcy, according to its two most senior financial officials.

Such a move would see it join a growing number of deficit-hobbled California cities that have used the filing to restructure onerous debt loads.

Compton, which has an accumulated $43 million deficit and has depleted what had been a $22 million reserve, will run out of cash to make its payroll on September 1 at its current cash consumption rate, city comptroller Steven Ajobiewe told the city council during a July 17 meeting."

Chuck again. I've said enough about this trend. I'll just continue to report on it, because eventually this will make the news.

To recap. Big Ben was at his best yesterday, not answering questions. That's called in media training, deflection. But the markets took their frustrations out on the dollar this time, and the risk assets are stronger this morning. The euro is back to 1.23, and the A$ $1.04. The price of Oil is rising again, and pushing the petrol currencies higher. And the Singapore $ is pushing the envelope of appreciation that the MAS allows.

Currencies today 7/19/12. American Style: A$ $1.0425, kiwi .8045, C$ .9920, euro 1.23, sterling 1.5685, Swiss $1.0235, . European Style: rand 8.1550, krone 6.0810, SEK 6.9185, forint 231.15, zloty 3.3815, koruna 20.6025, RUB 32.02, yen 78.55, Sing 1.2545, HKD 7.7560, INR 55.14, China 6.3725, pesos 13.13, BRL 2.0215, Dollar Index 82.83, Oil $90.62, 10-year 1.50%, Silver $27.52, and Gold. $1,587.30

That's it for today. Chris sent me a note last night, that he and his lovely wife, Tina, were taking a balloon ride over Napa Valley yesterday, and another rider noticed Chris wearing his EverBank baseball cap. He asked Chris if he worked at EverBank or just liked them. Chris said, "both!" and then the rider introduced himself as a Pfennig Reader! You just never know when you're going to run into a Pfennig Reader! I had a reader send me note the other day, from a remote river in Australia! Great stuff! I'm doing very well on my new medicine, which makes me happy. The last time, the medicine caused me to gain weight. that can't happen this time, because if I gain any more weight, I'll burst! Not even a wafer! HA! And with that. I'll get out of your hair for today. I hope your Thursday is a Tub Thumpin' Day!

Chuck Butler


EverBank World Markets



Posted 07-19-2012 11:24 AM by Chuck Butler