Chinese Manufacturing Takes A Dive
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In This Issue.

* FOMC Meeting Minutes throw currencies under the bus.

* U.S. Housing starts fall 16%!..

* ASX to clear trades in RMB!..

* Why do we still need to issue same amount of Treasuries?.

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

Chinese Manufacturing Takes A Dive.

Good Day! And a Tub Thumpin' Thursday to you! Well, when you can't consistently hit your free throws, you should lose a basketball game! Both my beloved Missouri Tigers and our St. Louis U. Billikens should have lost last night, as they couldn't throw the basketball in the ocean if they were at the free throw line last night, but they held on to both win their respective games.. Whew! And the U.S. Hockey teams, both men and women are doing quite well, the women play for the Gold medal VS Canada, and the Men will play Canada in the next elimination round game. Good stuff!

Not good stuff from the currencies this morning, as the tables have been turned, and the dollar has the conn today. It all began yesterday afternoon. Around noon, I turned to our metals guru, Tim Smith, and said, "you know, we've seen this a lot lately, the currencies & metals mixed and soft in the early morning, but by noon, they are on the rally tracks." I said that because, well, the currencies and metals were on the rally tracks. See how observant I am! HA! But then the Fed's FOMC Meeting Minutes printed, and all hell broke loose, with the dollar taking over the conn, and pushing the currencies and metals down, and that trading carried to the overnight trading sessions of Asia and Europe, for the currencies. Gold has turned around overnight.

Well, the latest FOMC meeting minutes printed yesterday afternoon, and set off the markets into thinking the Fed Heads might be contemplating a rate hike soon. Up to the minutes printing, the currencies and Gold were putting on a nice rebound on the day, and all were looking at the profit side of the ledger, but then along came the minutes, in which there was a phrase that caught the markets attention, it read: "A few participants raised the possibility that it might be appropriate to increase the federal funds rate relatively soon."

OK, I wish I had control over the markets, for I would tell them, as I'm telling you now, don't let this comment, get you all lathered up for these words were from the minority voting bloc. Other than that, I think the minutes were pretty funny. I know, I have a strange sense of humor. But, when the Fed Heads are spending a lot of time (and taxpayer money!) to come to this decision. "Participants agreed that with the unemployment rate approaching 6 ½% , it would soon be appropriate for the committee to change its forward guidance in order to provide information about its decisions regarding the Fed Funds rate after the threshold was crossed." You would have to question their sanity. But then that's just me, wondering when all this goal post moving is going to stop!

The Fed Heads continue to entertain me, they frustrate me, but entertain at the same time, sort of like that Child that makes you laugh, but frustrates you with other things. I don't see why the markets get so caught up in what the Fed Heads do. It's as if the markets still believe that the Fed Heads can wave a magic wand, and all will be right on the night for the economy. You would think that the markets would have become jaded in that view by now. Oh well, we have to deal with dolts in everyday life, the markets are just one more we have to deal with!

Ok. So, the euro can't even grab some wind for its sails when they print their PMI's (manufacturing Index) and show that the European recovery is still gathering steam, slowly, I might add, but still gathering steam. I guess that's the power of interest rate differentials, eh? And in the markets' eyes, if the U.S. is raising interest rates (and they're not any time soon, but don't let that get in the way of dolts thinking they are) then things in the U.S. economy must be hunky dory! But for those of you keeping score at home, the Eurozone aggregate PMI's for this month fell from 52.9 to 52.7, not a gain, but remaining above 50, which suggests to me that the Eurozone economy continues to progress. Slowly, but continue just the same.

The Aussie dollar (A$) has lost the 90-cent handle again, and this time makes sense to me. Down Under dear reader, Bob, sent me a note yesterday, that told of how Australia had just recently lost its entire car industry - and yesterday the Alcoa aluminum plant announced closure with 1000 jobs more or less, would be lost. Bob explained that these 1,000 jobs would be good paying jobs, and that will cause problems in the economy. I mentioned to the boys and girls on the trading desk yesterday that Australia sure seems to be taking hits from all over, and is doing well to keep doing the rope-a-dope.

Well, China has marked down the renminbi again overnight, that makes downward moves the direction the renminbi has moved all week. I know the Chinese are attempting to throw the markets off the scent of currency appreciation, but this is getting interesting. Will this continue? I doubt it, but then that's the beauty of this currency. You never know what the Chinese are going to do, (unless they told you ahead of time!) .

Last night in China, the Markit/ HSBC report on manufacturing took a deep dive, and is causing some concern in the Asian region today. The Markit/ HSBC manufacturing Index fell to 48.3 this month, which is a 7-month low for the data. As I've explained several times in the past, China prints two manufacturing index reports, one from Markit/ HSBC, and the other one from their Government, which pretty much is always better than the private data print.

There was some news from China and Australia yesterday that a Sydney reader sent along to me that I found very interesting, and wondered why this isn't being picked up by the media, for it's just another stepping stone for the Chinese in their quest to remove the dollar from the reserve status, and make their currency available to replace it.

The ASX (Australia stock exchange) will allow companies to transfer cash and settle deals in renminbi (RMB) by the mid-year under a new agreement with the Bank of China. The deal, announced today, will allow companies to avoid some foreign exchange costs when trading between Australia and China.

RMB is the first non-AUD currency to be settled on Australia's Austraclear. Austraclear currently settles $3 trillion in AUD cash transactions a year."

Pretty cool stuff, eh?

Staying in the general region. Singapore announced a sharply revised 4th QTR GDP yesterday, from the original negative -2.7%, to a larger than consensus level of +6.1%... OK, I know what you're thinking, because I already thought it. What the heck happened here? That big of a difference can not be a rounding error! Ahhh grasshopper. The first number was an estimate, and in December, the economy surged higher. OK, well that explains that I guess, but the key to take away here is that Singapore booked an annual 4.1% gain in GDP for 2013. I very respectable number I would say. And should keep the Monetary Authority of Singapore (MAS) , the group that decides the band size of which the Sing dollar can trade, on their toes, maintaining a wide band for the currency.

The Trade Deficit in Japan Widened in January. Now those are words you used to never even imagine think of saying! But that's the norm these days. Winter energy demands was blamed as the cause of the deficit, but come on, Japan has been printing Trade Deficits for over a year now. And it's one of the reasons the Yen has been so awful in that time. I know I explained this to you all long ago and far away, but there's so many new readers (YAY!) that I thought I would revisit it.

You see, Japan always had a Trade Surplus, which feeds into the Current Account, and a strong Current Account was always the underpinning for yen. Sure their Gov't debt was astronomical, but they had this strong Current Account, and yen benefitted from that. But then along came Trade Deficits, and the strong Current Account went away, and so too did yen strength. So, hearing that Japan's Trade Deficit had widened, is bad news for yen, to me that is. And I think the markets will play along eventually.

Speaking of eventually. I was reading an article by Doug French of Casey Research yesterday and he hit a nerve with me, on something he said. He said, " I called a market right, but was far ahead of when the move actually took place. Therefore, I was right, but my timing was wrong, which means I might as well have been wrong."

That thought really hit home with me, for I'm forever, talking about stuff that I see happening in the future, but if it takes longer than a week to take place, I might as well not say anything. Think about that for a minute. Even when I first said that the dollar was to go into a multi-year downward trend in 2001, I was 6 months ahead of when it actually began to take place.. Was I wrong? NO. But my timing was off, and people were beginning to look at me as if I had two heads! I think you see what I'm talking about here, I don't mean to be wrong about timing.

Today, we will get the latest auction numbers that the Treasury will seek on 2, 5 and 7-year issues. From what I read, there will be no change in the amounts needed to fund the country this go-around. the 2's will need $32 Billion, the 5's will need 35 Billion, and the 7's will need $29 Billion. That's nearly $100 Billion, folks. So I have to ask this question of the bean counters in the Gov't offices. If the U.S. deficit spending is falling, as you say it is, then why do we have to keep selling the same amount of Treasuries at each auction? Riddle me that Batman!

Well, did you see the rot on the Housing Starts vine yesterday? January, OK, here we go again with blaming the poor result on the bad weather, but it is what it is, right? But January Housing Starts fell -16% from December, which also the spin doctors said was a bad print because of bad weather. And guess what? The Gov't tells us that the Producer Price Index (PPI / wholesale inflation) only gained .2% in January, and put us on an annual rate of 1.2%... ARE YOU KIDDING ME? I kid you not, Chuck, this is the garbage they are trying to get us to swallow hook, line and sinker! Oh well. At least the numbers are getting so outrageous that even Joe 6-pack knows they are cooked.

Today, the U.S. Data Cupboard has the stupid CPI data for January. Shoot Rudy if you think that PPI was questionable, just wait for the BLS's latest CPI report! I don't pay any attention to CPI, because it's stupid, but the markets do, for some reason I can't explain, but they do, so we carry on with the markets in spite of our differences! We'll also get the Leading Index data for January, the Philly Fed Index (regional manufacturing) and the Weekly Initial Jobless Claims.. So a full day of data prints from the data cupboard today, which could make for some interesting currency moves today.

Did you know that a G-20 meeting will go on this weekend in Sydney, Australia? Well it will. And I would bet they spend mucho time listening to complaints from the Emerging Markets. I don't see where that gets us anywhere, but, I'm sure complaints about the U.S. Tapering are going to dominate the meeting. I read where G-20 would like to put pressure on the surplus countries to do more to boost domestic demand. Ahem. I'll take that one, G-20. If you want China to do more to boost domestic demand, just say so, that is unless you're a scaredy cat!

And last week, I told you about the stream of bankers that were committing suicide. Well, since I wrote that, 2 more have taken their own lives. This is getting pretty serious folks. WOW! We just had Thunder that shook the building! I thought the building was going down! That was scary! OK, back to the bankers. All of these had something in common, and that is that worked on trading desks or were associated to trading desks. I don't know about you, but my conspiracy blood is really heating up!

Before I go to the Big Finish today, I have a great little story for you. Please read and don't skip over, I think you'll love this. On a lighter note this morning, I wanted to share something with you that a dear reader sent me to read. It was a an article by a pastor that talked about his love of baseball and wanting to incorporate the game he loves into his devotionals. and then this quote hit me, I loved it so much that I'm going to share it with you, for you know how much I love baseball. "God loves baseball.. After all, he began his holy book with the words: "In the Big Inning"

You've gotta love that!

For What It's Worth. Well, I found this on the Bloomberg this morning, and makes me feel better about what I've been saying.

"To foreign exchange strategists, 2014 was to be the year the dollar broke free from the Federal Reserve's currency-depressing policies and appreciated the most since the global financial crisis. Then came the snow.

Reports ranging from a drop in housing activity to declines in manufacturing stemming from bad weather have caused the greenback to fall this month against all 16 major currencies tracked by Bloomberg except yen. Analysts who in December saw the U.S. Dollar Index rising 6% by mid-2014 to 84.9, have cut their estimates now to 82.9.

Weather is clouding the interpretation of generally soft U.S. data - is the U.S. growth trend intact, or is it weakening enough to affect the Fed's tapering path?"

Chuck again. See? The dollar's weakness is being blamed on bad weather now.. Look, IF the U.S. was cooking with peanut oil, the data wouldn't be so badly influenced by bad weather, so I'm just not buying all these excuses. As my old football coach used to say, "Excuses never won a ballgame for anyone".

To recap. The Fed's FOMC Meeting Minutes really threw the currencies and metals in front of the bus yesterday. The markets think the U.S. could be hiking rates sooner than previously thought, and the power of rate differentials came into play. I think they're wrong, but that doesn't hold any water with the markets. Housing starts in the U.S. fell 16% (because of bad weather. ) Chinese PMI as measured by Markit/ HSBC saw a dramatic fall to 48. Australia will see Alcoa close down, and the hits just keep coming at Australia!

Currencies today 2/20/14. American Style: A$ .8980, kiwi .8290, C$ .9030, euro 1.3705, sterling 1.6655, Swiss $1.1230, . European Style: rand 11.0904, krone 6.0990, SEK 6.5355, forint 228.95, zloty 3.0520, koruna 19.9790, RUB 35.83, yen 101.95, sing 1.2655, HKD 7.7555, INR 62.22, China 6.1146, pesos 13.33, BRL 2.3885, Dollar Index 80.28, Oil $103.24, 10-year 2.72%, Silver $21.60, Platinum $1,412.13, Palladium $732.00, and Gold. $1,313.20

That's it for today. I see that Wal-Mart missed their revenue targets, that will be blamed on the bad weather too. I had a long day at the office yesterday, which cut into my nap time! UGH! But that only happens every now and then, so I'm good. Well, the host country Russian hockey team bowed out yesterday. Their coach was quoted as saying, "Eat me alive, right now". He'll probably never be heard from again. But at least he understands what's going to happen to his coaching career. So, our Billikens were able to hold on to win their 18th consecutive game last night. Well, there's 8 days left in February, and then we turn to March (one of my fave months of the year), and March Madness, so both the Billikens and Tigers need to work on those free throws! Deep Purple is playing Smoke on the Water on the IPod. I remember when every garage rock band played this song! Well, probably not the guitar solo part! Space Truckin' is my fave Deep Purple song. Well, Mike is here, which means I'm running late. and yesterday was Mike, Mike, Mike what day is it, day, so I have nothing else. I hope you have a Tub Thumpin' Thursday!

Chuck Butler
EverBank World Markets

Posted 02-20-2014 11:21 AM by Chuck Butler
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