In This Issue.
* Plethora of data push dollar lower...
* German unemployment show a surprise improvement...
* Pound continues to get sold...
* Canadian dollar moves back above parity...
And, Now, Today's Pfennig For Your Thoughts!
US data push the dollar lower...
Good day. And welcome to February. I can't believe January is already over, it really flew by didn't it? The St. Louis University basketball team pulled off what many would call a big upset yesterday by beating #9 Butler last night, and they won in impressive fashion! Congrats to the B-ball Billikens!! We had a busy day on the trading desk yesterday with the markets reacting to what was a plethora of data releases here in the US. And today we will have just as much data released which should lead to another volatile day.
The last day of January started off with data showing the Personal Income and Spending of US consumers increased in December. The surprise number was on the income side where the data showed a 2.6% jump after an adjusted increase of 1% in November. These are some very strong numbers on the income side and were thought mainly to be due to questions regarding the fiscal cliff at year end. It seems many companies paid dividends and employee bonuses earlier than usual in order to avoid the jump in tax rates which everyone knew would be happening as we turned the calendar over. According to a story I read in Bloomberg, the Commerce department estimated about $26.4 billion of the increase in incomes was attributable to early dividend payments and another $15 billion reflected bonuses on other types of irregular pay. So the jump in income wasn't really increases, it was simply a timing difference so the income numbers during the first quarter will undoubtedly show the flip side of these increases during last quarter.
And in addition to the early bonuses, the payroll tax will be more of a drag on consumer's disposable income this quarter. And even after the large surge in incomes during the last month of 2012, Personal spending actually showed a smaller increase than expected. Spending was up .2% in December after a .4% increase in the previous month. Other data showed prices remained flat in December as the PCE numbers were flat on a MOM basis.
This data was followed up with the weekly jobs numbers which showed a slight increase in the number of jobless claims last week. The data showed 368k more workers applied for first time employment benefits compared to last weeks 330k. Continuing claims increased to 3197k compared to an adjusted figure of 3175k last week. The pace of recovery in the US labor market certainly isn't increasing, and we will get even more jobs data later this morning. Economists are expecting today's Nonfarm Payrolls numbers for January to reflect an increase of 165k with Private payrolls showing a 168k increase and another part of the report to show 10k more manufacturing jobs were added last month. The Unemployment rate is expected to remain at 7.8%, stubbornly high and well above Bernanke's 6.5% target.
The labor department will also be issuing its annual benchmark update, reflecting all of the revisions which it has made to the employment numbers from April 2011 to March 2012. The government will also incorporate new Census Bureau estimates into the household survey it uses to calculate the jobless rate. I'm sure Chuck will be dissecting these 'adjustments' and will share his thoughts with all of you (I can just hear him screaming at the walls now!)
And yesterday's plethora of data ended with the release of the Bloomberg Consumer Comfort index which fell again last week. The index dropped to minus 37.5 from -36.4 the previous week. This was a fourth consecutive decrease, and the lowest reading since October as the increase in the payroll tax put consumers in a negative mood.
There was a bit of good news across the pond as German unemployment unexpectedly declined in January. Even with the improvement in the German labor market, unemployment in the euro area remained relatively high at 11.7%. But this reading is still below economists forecast of 11.9% for the EU jobless rate. These good employment numbers combined with the worrying data here in the US to push the Euro up almost a full cent. The Euro surged to a high of $1.3675, the highest level for the common currency since November of 2011. The euro ended January with a 2.93% increase vs. the US$, with Brazil being the only currency with a better return vs. the US$ at 3.02% for January. This is the sixth straight month of gains for the Euro vs. the US$, a somewhat surprising run for the common currency. We still caution investors against the euro, as the sovereign debt problems are sure to raise up again sometime this year; but this run by the euro is certainly impressive.
Currency experts at some of the major banks feel the Euro has even more room to appreciate. According to a report by BNP Paribas SA the euro will strengthen to $1.40 by the third quarter of this year, the highest level since 2011. The Paris bank's experts also said they expect the yen to experience 'sustained' weakness this year. BNP feel the Japanese currency will fall to 95 during the first quarter before strengthening to 85 by year end.
That reminds me of an alert which caused a bit of a stir on the desk yesterday. Brian Arabia, the head of our Business Foreign Exchange department, forwarded all of us an alert which stated "Dollar at 2 ½ year high". I immediately turned toward the screens to figure out what had caused the big reversal of fortune for the US$, but saw the euro above $1.35 and the Brazilian real below the 2 handle. But after looking a bit harder at the news story Brian had sent I saw it was just referring to the dollar/yen. Yes, the dollar is certainly strong vs. the Japanese yen, but this isn't because of the dollar's strength but is rather due to the weakness of the Japanese yen. This just goes to show you how the media can twist things around a bit and spin them to give readers a much different first impression. A clearer story on the US$ can be seen by looking at the dollar index. This broader based index dropped to a six week low and has just dropped below a key support level of 79.2.
The only currency which joined the yen in dropping vs. the US$ yesterday was the Pound sterling which tumbled to the weakest level in 14 months. A report showed UK manufacturing growth is slowing with the Markit Economics supply index falling to 50.8 from a revised 51.2 in December. The pound dropped almost 2.5% vs. the US$ in January, and is down about 2% over the past 3 months. The UK is close to slipping into a 'triple dip' recession, with GDP dropping .3% during the 4th quarter of 2012.
Depending on the data this morning in the US, currency traders could start to bid up the commodity currency in a 'risk on' day as China's manufacturing index is expected to have climbed in December. The median estimate of economists pegs China's January PMI at 51 compared to a reading of 50.6 in December. If the number is as expected, this would be the fourth straight month of a 50+ reading which signals the Chinese economy is again on an expansionary route.
This would help the Australian and New Zealand dollars which depend on the strength of the Chinese economy. The Aussie can use a little 'love' from the Chinese after a report showed a gauge of Australian manufacturing fell to a 3 ½ year low in January. The strength of the Australian dollar has hurt exports and manufacturing in Australia, causing a 4.1 point drop in the manufacturing index. This gauge has shown Australian manufacturing has been in contraction since February of 2012. But currency strategists are still boosting forecasts for the Aussie dollar as they expect the Australian economy to rebound along with renewed growth in China. According to Bloomberg, estimates for the Aussie have climbed 8.2% to $1.05 from 97 cents on June 30. This isn't a large increase from the $1.0419 where it is trading now, but it is still an increase.
The Canadian dollar broke above parity for the first time in a week after a report showed the Canadian economy grew faster than forecast in November. The report released by Statistics Canada said the Canadian economy grew .3% following a .1% gain in the month prior. The loonie had been beat up a bit in January, but this data was enough to push the currency back above parity vs. the US$.
To recap. Data pushed the dollar lower as the US economy is seen as stagnating in the 4th quarter. More data released today may give the markets direction, with the jobs data expected to show a small improvement. German unemployment data surprised on the upside and pushed the euro above $1.365 with many 'experts' feeling the euro has even further to run. Japanese yen continues to fall and was joined by the pound sterling which also dropped. The commodity currencies direction will be determined by the Chinese manufacturing numbers which will be released later today.
Currencies today 2/1/13: American Style: A$ $1.0392, kiwi .8424, C$ 1.00, euro 1.3645, sterling 1.5839, Swiss $1.1052. European Style: rand 8.9420, krone 5.4461, SEK 6.3043, forint 214.50, zloty 3.0635, koruna 18.796, RUB 29.98, yen 92.13, sing 1.2409, HKD 7.7581, INR 53.1975, China 6.2273, pesos 12.7241, BRL 1.9869, Dollar Index 79.029, Oil $97.30, 10-year 2.00%, Silver $31.44, and Gold $1,664.70.
That's it for today. Happy birthday to my wonderful wife of 21 years. Tina is a great mom and good friend and I could not imagine my life without her. I asked her if she wanted to go out to a romantic dinner this evening and as is typical she instead wanted to just have a casual dinner with our kids, her mom and her sister. It's a big day on the desk today as we finally get our replacement for Lori who left at the end of last year. Dane Moody, who started off in our operations area and then transferred to our wealth division is joining Christine on the trading side of the WorldMarkets desk. Welcome Dane, we all are excited to have you join the team!! I hope everyone has a Fantastic Friday and a Wonderful Weekend. GO NINERS!!
Chris Gaffney, CFA
EverBank World Markets