Currency markets unchanged as we wait for rate announcements...
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In This Issue.

* Waiting on rate announcements...

* Yellen and Krugman singing from the same song sheet...

* RBA keeps rates unchanged...

* Oil falls, helping to push both CAD and MEX lower...

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

Currency markets unchanged as we wait for rate announcements...

Good day... The currency markets were largely unchanged yesterday as investors continue to wait for the results of several central bank meetings. Expectations have slowly shifted away from any rate increases, and most are now expecting banks across the globe to keep their rates at current levels. But while rate adjustments have largely been taken off the table for this round, currency investors will be focusing on the central bank statements which accompany most of the decisions. Traders will be looking for any indication of future rate moves buried in the words of policy makers. Lately the data has been indicating the global economic recovery is still fragile, with the globes main growth engine, China, showing signs of another slight slowdown.

Economists had expected a report released this morning to show services and manufacturing in Europe matched earlier reports which showed the slowdown in China. But a composite gauge of output in Europe surprised economists by contracting less than expected. The gauge, released by London-based Market Economics was 47.9 in February a drop from 48.6 in the previous month, but still higher than the 47.3 level economists had predicted. Another report showed Spanish jobless claims slowed in February, indicating the fourth largest economy in the EU is continuing to recover. The number of registered unemployed rose by just under 60k in February, less than ½ of the increase in the first month of 2013. This was the best performance for a February in five years, but the labor picture in Spain is still not bright.

The euro was also helped by news out of Brussels indicating European finance ministers would agree for some nations to loosen their austerity measures. The backlash by Italian voters has apparently convinced these finance ministers that they will need to agree to allow some easing of deficit reduction targets in order to avoid more widespread protests. The ECB will be meeting later this week, and some are now expecting ECB President Mario Draghi to signal a more dovish tone at the press briefing following the rate announcement. ECB policy makers will update their December economic forecasts, and most believe they will indicate a weaker euro area GDP which would increase expectations of future rate cuts in Europe.

The Vice Chairman of our Federal Reserve and a prominent economist both agree with those members of the ECB who feel further easing is still needed. Fed Vice Chairman Janet Yellen said yesterday that the Fed should press on with the $85 billion in monthly bond buying in spite of the risks of fueling inflation. "Turning to the potential costs of the Federal Reserve's asset purchases, there are some that definitely need to be monitored over time," Yellen said yesterday. "At this stage, I do not see any that would cause me to advocate a curtailment of our purchase program."

Princeton University economist and Nobel laureate Paul Krugman takes it a step further, calling for an increase in government spending to sustain US growth. "The crucial issue right now is, are we going to keep on cutting spending and derailing this recovery, or are we going to at least try to spend" the money "that this economy needs," he said on the Charlie Rose show. "We be set for a pretty solid" recovery if it weren't for the fiscal tightening, Krugman said. Krugman would like us to keep increasing spending, suggesting we should just not open up the mailbox so we can ignore those pesky bills that keep showing up! He believes any spending cuts, even to 'wasteful defense spending' (his words) are going to be a problem for the economy.

Another central bank who is on the same page as those calling for additional stimulus is the Bank of Japan. A candidate for deputy governor of the BOJ said today in parliament that the central bank mustc continue to expand its monetary base and buy longer maturity bonds. He warned that it will be difficult for the Japanese economy to reach the 2 percent inflation target in the next two years. The BOJ meets later this week and could announce additional stimulus on top of the already aggressive measures they have put in place to try and push the Japanese economy out of the deflationary slump it has been mired in.

The Australian central bank was the first of several central banks announcing their rate decision this week, and started us off with the expected 'no change' in rates. Governor Glenn Stevens said in a statement following the meeting that growth in 2012 was mostly due to capital spending in the commodity producing sector. But he also warned that rates could be adjusted lower as the inflation outlook seems to offer some room for further cuts if they are needed. The Aussie dollar recovered a bit after sliding over the last couple of days leading up to the meeting. Home prices in Australia have stabilized, and recent drop in commodity prices caused by uninspiring data out of China has increased the possibility of further rate easing by the RBA. Stevens also reiterated his earlier statement that the Aussie dollar still seems a bit overvalued. "The exchange rate remains higher than might have been expected, given the observed decline in export prices, and the demand for credit is low, as some households and firms continue to seek lower debt limits," Stevens said this morning. A government report released today helped the Aussie dollar shake off earlier losses after it showed Australian retail sales snapped three months of declines in January, rising at more than twice the pace economists had forecast.

Oil prices fell below $90 a barrel for the first time in 2013 after reports yesterday showed service industries in China expanded at the weakest pace in five months. Prices for Oil have been dropping over the past week, putting pressure on the currencies of those countries who export the 'black gold'. The International Energy Agency trimmed their global oil demand forecasts for 2013 last month, and the disappointing news out of China (the world's largest consumer of oil) caused further pressure on oil prices. The Canadian dollar fell very close to an eight month low vs. the US$ on the drop in oil prices. I forgot to include Canada in yesterday's list of central banks meeting this week, but as with all of the other central banks meeting this week, economists are expecting the BOC to keep rates unchanged. The statement will again be the key for the direction of the Canadian dollar. If the statement sounds dovish as most are expecting; the loonie will probably come under additional selling pressure. But if, on the other hand, Carney begins to sound a bit more hawkish the Canadian dollar could start moving back towards parity with the US$.

We aren't expecting much in the way of data today, and only have the Factory Orders for January and the release of the Fed's Beige book tomorrow, so the currency markets will definitely be in a 'wait and see' mode as take direction from the numerous central bank meetings taking place over the next few days.

Then there was this... Chuck sent me an article which he suggested I include in today's TTWT. It was written by our friends over at Casey Research, who did a great job of comparing Golds current market bearishness to the markets back in 1976 when it seemed everyone was on the same side of the trade. The mood of the markets was definitely bearish, but history showed that this was actually one of the best times to be buying.

You can read the entire article, and sign up for the daily dispatches at the following: .

To recap. The currency markets were largely unchanged yesterday as investors continue to wait on Central Bank rate decisions across the globe. Data showed a slowdown in the manufacturing sector in Europe, but the drop was less than what was expected by economists. The euro also benefitted from positive labor news out of Spain. Janet Yellen is calling for additional stimulus, and doesn't think inflation is going to be a problem anytime soon. Officials of the BOJ are also calling for additional stimulus as everyone seems worried the global recovery will falter as soon as central banks stop fueling the markets with cheap money. The RBA did announce their rate decision, and kept rates unchanged (as expected). And finally the price of oil fell below $90 a barrel putting pressure on currencies of commodity exporting countries.

Currencies today 3/05/13. American Style: A$ $1.0241, kiwi .8273, C$ $.9735, euro 1.3045, sterling 1.5156, Swiss $1.0633. European Style: rand 9.0454, krone 5.7014, SEK 6.3815, forint 228.93, zloty 3.1665, koruna 19.6312, RUB 30.6994, yen 93.10, sing 1.2458, HKD 7.7561, INR 54.925, China 6.2211, pesos 12.7408, BRL 1.9688, Dollar Index 82.016, Oil $90.37, 10-year 1.89%, Silver $29.00, Gold $1,582.95, and Platinum $1,585.75.

That's it for today. My friend and co-worker Mike Meyer surprised everyone yesterday as he walked in on crutches. Mike unfortunately broke his ankle over the weekend and will be on crutches for a couple of months. I'm just thankful he didn't break his hand, as he will be writing the Pfennig for a week later this month as both Chuck and I are on Spring Break. Our new Chief Credit Officer was up from Jacksonville yesterday to meet everyone in the St. Louis office. It is impressive how EverBank continues to grow and evolve, and we are certainly hiring some top notch folks to run things. Speaking of changes, have you been able to check out our new 'look'? If not I would encourage you to visit our website to see the new look and feel of the bank. I guess they will probably be 'rebranding' the Pfennig sometime soon. Thanks to all of you for reading the Pfennig, and I hope you go out and have a Terrific Tuesday!


Chris Gaffney, CFA
Vice President
EverBank World Markets

Posted 03-05-2013 11:40 AM by Chuck Butler
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