Oil Fuels Petrol Currency Rally.
Daily Pfennig

Blog Subscription Form

  • Email Notifications


In This Issue.

* Currencies & metals continue to recover.

* Krona gets sold on Riksbank minutes.

* A$ weakens on Trade deficit widening.

* Racing to the debt ceiling.

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

Oil Fuels Petrol Currency Rally.

Good day. And a Tom Terrific Tuesday to you! It had been awhile, with vacations, and holidays that I greeted you with the Tom Terrific Tuesday. So, we've got that going for us today! Congratulations to University of Alabama, who routed Notre Dame for the college football National Championship last night. For once, I didn't have to go to bed wondering who was going to win, for Alabama was in complete control from the get-go. (they dismantled my beloved Missouri Tigers the same way!)

Well. the euro is about 1-cent stronger this morning than it was yesterday morning. most of the move higher came about during the day yesterday, with about 1/3-cent gained this morning. The added gains this morning, are surprising given the bad surprise that Germany got, when November Manufacturing Orders fell -1.8%... The negative print wasn't a surprise, as a negative -1.4% was forecast. the surprise obviously came from the strength of the negative print. But, apparently, the markets have shrugged off the data, and have pushed the euro back above 1.31 this morning.

I heard a quote from famous and well respected analyst, Marc Faber, who said that , "I'd rather be in U.S. dollars than euros". Hmmm. I have to differ with the good doctor here. and the markets sure would agree with me, given the fact that even after all the negativity last year that was heaped on the Eurozone and euro, the currency continued to be priced at a level much greater than the dollar!

Since the meltdown of the currencies and metals last Friday that came about from the FOMC meeting minutes, the dollar has retreated. This is where you have to be careful following the dollar index for the dollar's performance, because the dollar's weakness could very well be masked by weakness in the Japanese yen. And this is where, I rejoice in that the dollar index's relevancy is reduced, thus requiring us to look at individual currencies for their fundamentals as to their values.

The Swedish krona is the worst performing currencies (G10) overnight, after the latest Riksbank (central bank) meeting minutes revealed several members making a case for a 50BPS (1/2%) rather than the 25 BPS (1/4%) rate cut that the Riksbank delivered in December. This news has been received by the markets as more rate cuts are in the plans. I wonder why the markets have gone down this road, for if my memory serves me correct here, after the Riksbank announced the 25 BPS rate cut in December, they also said that rates were on hold for most of 2013. So, once again, the markets have decided to take a knee jerk reaction to something that's not really there.

Another currency finding it difficult to get some wind for its sails this morning is the Aussie dollar (A$), which saw their November Trade Deficit print wider than expected. (you have to take this stuff with a grain of salt, for it's so long ago!) The Aussie Trade Deficit widened to $2.6 Billion from A$2.4 Billion in October. I wouldn't get too caught up in this report, folks.. we all know that the Chinese economy seems to have turned the corner and onto recovery street, and also given what we saw yesterday with the increase in iron ore prices to the highest level since October of 2011, the Trade Deficit should narrow as the reports catch up with what's actually happening now.

The A$ is still at or above $1.05 this morning, so the "hit" it took wasn't exactly one with conviction! I guess traders there saw what I saw. Now wouldn't that be good thing! We'll get to see the color of the latest Aussie Retail Sales (again from Nov.) this afternoon. I expect the report to be bang on with expectations for a .3% increase, which won't be a currency mover.

I see on Bloomberg this morning that another forecast for the Indian rupee is going out on the limb. I like people that go out on the limb, for I've done that many-a-time. But this guy might not have picked out a big fat limb to go out on. Commerzbank, which had the closest estimates for currencies in the past 6 months, issued a report by one of their strategists, that calls for a 10% rally in the rupee based on his belief that inflows into equities and bonds will be the catalyst.

Now, you all may recall me writing about the inflows into China last month, and saying that these inflows had spilled over to India. But, come on. a 10% rally? We haven't see that from the rupee since 2006 when it gained 12.29%... unfortunately, since then the rupee has posted the not so good returns of -19.24%, +4.9%, +4.28%, -15.74%, and -3.07%... I used to say I like Indian rupees. but once bitten twice shy babe, right? Now, I do believe that the inflows will help the rupee, but going out on the 10% return limb is not for me.

The price of Oil has been on the rise again. the stronger Oil price has underpinned the petrol-currencies that include: Norway, Russia, Brazil, Canada, Mexico, and even the U.K. Oil seems to be gaining on renewed forecasts for consumption increasing in the U.S. and Eurozone. Of course it just happened to be my day for filling my gas tank this morning. to pay the highest price in 4 months! Timing. it's just not my forte!

You know that I've always considered the Russian ruble as an "oil play".. So, as the price of Oil goes, so goes the ruble.

Another currency that's been in the dumpster for over a year. The Brazilian real, has seen some positive movement lately and I'm sure it's tied to the move in the price of Oil. Sure, even after all the rate cuts by the Brazilian Central Bank, there is still a yield advantage in Brazil. but with the Gov't so hell-bent on driving the price lower, that yield advantage was being eaten up in a heartbeat. So, to me, this has to be an "oil move".

The price of Gold is stronger this morning by $9. But then, that's before the NY boy and girls arrive at their desks. Did you see the picture of the Indian man wearing a shirt made of Gold that weighs 7 pound and cost $230,000? Pretty interesting, eh?

The Big Boss, Frank Trotter, sent me a story to read yesterday. It was an article by Bill Gross, aka the bond king from PIMCO. The title itself was classic, and I sat there and wished I had thought of it! "Money for Nothin' Writing Checks for Free". you have to sing that with the Dire Straits melody. you know. money for nothing and the chicks for free. OK. I guess it kind of loses its humor when I explain it all out. UGH! Oh well.. the gist of this discussion is that Bill Gross believes the "whole charade will soon hit a brick wall". This was after he called attention to the near $10 Trillion explosion in Global Central Bank money issuance since 2006, and the impending doom historically associated with a "money for nothing" monetary policy. The whole article can be found and read here: http://bullmarketthinking.com/bill-gross-fed-claims-to-own-a-few-billion-in-fort-knox-gold-with-nothing-in-the-vault-to-back-it-up-amazing/

Then There Was This. OK. last week, I gave you the timeline for the 3 things that were going to cause us here in the U.S. problems. One of them was that it was reported that the extraordinary measures implemented by U.S. Treasury Sec. Tim Geithner to keep us from shutting down the Gov't or going into default, since we were bumping up against the debt ceiling again, would last until March. Well, not so fast!

From the Washington Post. "The U.S. government may default on its debt as soon as Feb. 15, half a month earlier than widely expected, according to a new analysis adding urgency to the debate over how to raise the federal debt ceiling.

The analysis, by the Bipartisan Policy Center, says that the government will be unable to pay all its bills starting sometime between Feb. 15 and March 1. The government hit the $16.4 trillion statutory debt limit on Dec. 31 , but the Treasury Department is able to undertake a number of accounting schemes to delay when the government runs into funding problems.

"Our numbers show that we have less time to solve this problem than many realize," Steve Bell, senior director of economic policy at the Bipartisan Policy Center, said in a statement. "It will be difficult for Treasury to get beyond the March 1 date in our judgment."

Chuck again. yes, and leave it to our leaders to take this to the very last eligible day! Do we really need to raise the debt ceiling again? I mean, isn't $16.4 Trillion enough? Apparently not!

To recap. The currencies and metals are attempting to add to yesterday's mini-recovery. The Aussie Trade Deficit widened in Nov, but Chuck believes this to be too old of data to see what's going on now. The Riksbank meeting minutes stirred up the markets into believing another rate cut is coming, and thus selling the krona. And Chuck questions the size of the limb that the a currency forecaster went out on, when he forecast a 10% rally for the Indian rupee.

Currencies today 1/8/13. American Style: A$ $1.0505, kiwi .8360, C$ $1.0150, euro 1.3115, sterling 1.6095, Swiss $1.0850, . European Style: rand 8.5565, krone 5.5865, SEK 6.54, forint 222.70, zloty 3.1415, koruna 19.4655, RUB 30.22, yen 87.50, sing 1.2275, HKD 7.7515, INR 55, China 6.2235, pesos 12.75, BRL 2.0245, Dollar Index 80.22, Oil $93.42. 10-year 1.89%, Silver $30.40, and Gold. $1,655.70

That's it for today. Our Wealth Management Investment guru, Christie, is here this morning, I had to ask her if she couldn't sleep, since she was in so early! It's a good thing she's not on the currency trading desk, as we already have a Chris and a Christine! Good luck to my beloved Missouri Tigers as they begin their first SEC basketball season tonight VS Alabama. The Tigers are currently ranked #12 in the country, which is pretty exciting! I guess I wasn't very nice to the Notre Dame team at the top. they did finish #2, which isn't too shabby! Congrats to them too! Time to get this out the door. I hope you have a Tom Terrific Tuesday!

Chuck Butler
EverBank World Markets

Posted 01-08-2013 10:47 AM by Chuck Butler
Related Articles and Posts