Dollar continues its slide...
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In This Issue.

* Mortgage apps fall

* Plenty of data today

* Kiwi rides a wave

* Brazil falls through 2.32

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

Dollar continues its slide...

Good day.and welcome not only to the half way point of August but also another Thursday morning. Both Chuck and Chris are out in San Francisco for the Money Show, so I get to take you through the remainder of the week. If you're in the neighborhood, feel free to drop in and say hello. Well, most of the market action yesterday took place in the morning so it turned out to be a fairly quiet day when it was all said and done. As Chris mentioned, I do have an important EverBank announcement but let's first take a look at the main course before we see what's cooking.

While there was plenty of data yesterday in Europe, it was rather sparse here in the US. We began the day with last week's measure of mortgage apps, which fell 4.7%, and represented the lowest level in over two years. Even though rates have declined a bit, the purchase gauge fell to the weakest level since February and the refinancing component dropped to the lowest level since April 2011. Since the Fed had mentioned rising mortgage rates as a concern during their last meeting, I would have to think housing numbers will be more closely scrutinized going forward. It will be interesting to see if a pain point begins to emerge among borrowers as it relates to a higher interest rate environment.

We then had July's producer price index, which is also known as wholesale inflation and is one of three monthly inflation gauges from the Labor Department, came in flat for the month. It looks as though a drop in the wholesale cost of cars and a drop in energy costs to their lowest in at least four years accounted for a majority of the benign result. More importantly, the core index, which factors food and energy out of the equation, came in lower than expected and represented the lowest annual rise since November 2010.

The Fed also gave a shout out to inflation during their July meeting as they acknowledged low inflation could present some problems. Low inflation, from a central bank standpoint, is not always a good thing since it can persuade businesses and consumers to postpone purchases with the thought a cheaper price could be obtained down the road. As a result, it does not promote higher consumption which they desperately need to keep the economy afloat. An environment of low inflation is not something that would be considered taper friendly, but Fed members have argued temporary factors are keeping inflation restrained.

The last report, which was the New York Fed's gauge of household debt, was more of an informative piece than anything, but nonetheless, I found some of the numbers to be compelling. For example, they said mortgage balances had decreased $91 billion to $7.84 trillion and home equity lines of credit decreased by $12 billion down to $540 billion. At the same time, non-housing debt was on the rise as car loans, student loans, and credit card balances also showed increases. With that said, total US household debt fell 0.7% in the second quarter by $78 billion to $11.15 trillion. Again, it's something that might come in handy at your next trivia night.

If we take a look toward this morning, there are quite a few reports hitting the wire. Since it's Thursday, we get the usual weekly jobs number but we also get to see July consumer prices. The rest of the reports will consist of TIC flows, industrial production, capacity utilization, another manufacturing gauge for July, and an August housing market index. If I compare all of the numbers the experts are calling for to that of the previous results, they are all pretty flat. I'm not seeing much that would impact taper talk one way or the other at this point, but we'll see if there are any surprises.

As I mentioned up top, the currency market held steady all day long as the US trading session finished in the same vicinity as where it had opened. The New Zealand dollar remained well ahead of most currencies in the return department by closing with over a 0.75% gain. Chris touched on this yesterday, but second quarter retail sales in New Zealand showed quite a rise and traders now see a 96% chance the central bank will raise rates at least 0.25% by April. I'm surprised there are that many on the same side of the see-saw, especially with the way policy makers have constantly complained about a high exchange rate.

While I'm in the neighborhood, I saw an interesting story in Bloomberg about the Australian dollar and its impact on their bond market. Basically, it was making the case that a cheaper Aussie is luring more foreign investors, namely the Japanese, to purchase Australian bonds. Obviously the possibility of more rate cuts has helped the bond market, but a lower exchange rate is giving foreigners that added incentive. Anyway, just thought I would throw that out there since this can have an impact on the direction of the currency. If we have more buying the currency to obtain bonds, that would lend support to the Aussie.

Moving on to the euro, you would have thought the conclusion of six straight quarters of economic contraction would have impacted the currency more than the ho-hum response we got. As Chris mentioned, the markets were already anticipating a positive number so much of the news has already been priced in. Not only that, most economists are viewing this result more as a sign of stabilization instead of a recovery. There are still many hurdles that will be encountered, but you have to start somewhere. Regardless, the euro traded in a very tight range of 1.3280 to 1.3239 and settled in at 1.3255 as I left the office last night.

In other news, the Swiss franc lost about 0.25% yesterday even though investor confidence in August was on the rise. It seems as though investors sold the franc on the better eurozone economic data since its safe haven status lost some luster. Speaking of luster, the Brazilian real fell past 2.32 yesterday for the first time in over four years and just can't gain any traction. While retail sales came in on the positive side of the ledger, the market looks like it wants to keep pushing the Brazilian central bank in order to see how far they can take it. Unfortunately, the underlying economy just isn't in a position to lend support. Other than that, it was all quiet on the western front.

As I came in this morning, the currency market is still heading in the same direction with the New Zealand dollar in the lead so far. The dollar is down against most currencies on anticipation the CPI data to be released in just a bit will remain on the soft side, which would strengthen the case for tapering to be put on hold. It also looks as though comments from St. Louis Fed president James Bullard are lingering . He said the FOMC forecasts have tended to be overly optimistic over the past several years and given that fact, he urged caution in taking policy action based on forecasts alone. I think he makes a valid point and would certainly agree caution is warrented.

Then there was this.If you're a faithful Pfennig reader - and I'm sure you are - you may have seen Chuck mention our new 5-year MarketSafe Evolving Economies CD in the past few weeks. Well, today is the day this exciting new product launches. This CD, which offers 100% deposited principal protection, is a limited time opportunity that brings you access to the full upside potential of four emerging market currencies: the Colombian peso, Mexican peso, Turkish lira, and Indian rupee. And what's most exciting about this CD is the brand new "jump-note" structure that guarantees a 15% minimum upside payment if the currency indices outperform the dollar. Don't miss out. This CD comes at a time when the U.S. dollar is hot and the currency upside potential strong. Open and fund your CD by September 11 to secure your spot in this innovative financial growth opportunity. Please use the following link in your browser-

To recap.Mortgage apps from last week fell to the lowest level in two years, so is this the sign of things to come. Headline inflation, from the wholesale perspective, was flat while the core figure came in at the lowest clip since November 2010. Neither one of those reports would be considered taper friendly. We have a full plate in the data department this morning, none of which are expected to deviate from previous results. The currency market had a quiet day as the New Zealand dollar rode its retail sales wave. Will more buying Australian bonds translate into a higher Aussie. The euro traded in a very tight range while the Swiss franc and Brazilian real finished at the bottom of the barrel.

Currencies today 8/15/13. American Style: A$ .9155, kiwi .8077, C$ .9680, euro 1.3292, sterling 1.55585, Swiss $1.0698, . European Style: rand 9.9379, krone 5.8963, SEK 6.4992, forint 225.02, zloty 3.1630, koruna 19.4228, RUB 32.9559, yen 98.14, sing 1.2718, HKD 7.7546, INR 61.4437, China 6.1696, pesos 12.7603, BRL 2.3249, Dollar Index 81.54, Oil $107.53, 10-year 2.74%, Silver $22.05, Platinum $1,514.55, Palladium $748.40, and Gold. $1,337.58

That's it for today.These MarketSafe CDs are great tools for many, which includes those just trying to test the waters or those just looking for something a little different, so check it out. I'm anticipating the phones will be lit up like a Christmas tree all day long, so I need to make sure all of my stuff is caught up so I can hit the ground running this morning. I was taking a look at the calendar and its tough to grasp that Labor Day is only 2 ½ weeks away. Hopefully it turns out to be a quiet weekend for me because I could really use the down time. Anyway, I need to run so until tomorrow, Have a Great Day!

Mike Meyer
Assistant Vice President
EverBank World Markets

Posted 08-15-2013 11:15 AM by Chuck Butler