A Pfennig For Your Thoughts

In This Issue…

  • $750 Billion Trade Deficit for 2006…
  • German economic growth shines!
  • Australia’s report card keeps getting better!
  • A BOE surprise!

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And Now… Today’s Pfennig!

Trade Deficit “Narrows” Again…

Good day… More dollar buying yesterday as the Nov. Trade Deficit “narrowed”, which was unexpected… The November Deficit came in at $58.2 Billion. Let’s face it… The “narrowing” from $68 Billion a couple of months ago, has been largely due to the falling oil prices… But can we seriously believe that oil prices will continue to fall? I guess we “can”… But, I’m not going to get caught up in that pipe dream! I, like the European Central Bank am going to continue to operate with the thought that the fall in oil prices is a short-term trend.

Of course, $58.2 Billion still contains a ton of purchases by U.S. consumers… And most of that if from China, which doesn’t export oil! With one month to go as far as the Trade Deficit books are concerned, the U.S. has already pushed past the $700 Billion mark for 2006… So… We’ll book a nice big fat Trade Deficit in 2006 of at least $750 Billion… Put that on a sandwich board and walk around town!

People just don’t care about this Deficit… We’ve been told by various people who should know better than to spout off stuff like “deficits don’t matter” for so long now, U.S. Consumers are believing it… Believing it so much that they’ve decided to build their personal debts too… Hey! What’s good for the goose is good for the gander! Ahhh, grasshopper there will come a day of reckoning…

OK… Enough of that! The good stuff happening in Germany just keeps coming through the door! Germany’s domestic product rose 2.5% in 2006… You may recall that Germany posted an anemic .9% growth number in 2005, so this is quite a jump, eh? That’s the best showing for German economic growth since 2000! So, those that keep jumping all over the European Central Bank (ECB) for raising interest rates, maybe they’ll keep their trap shut now! ( I doubt it, but we can only hope, eh?)

As I’ve talked about earlier this week the ECB is meeting today, and I do not expect a rate hike this time, instead I would look for the next rate hike in February. However, I think the euro bulls, like me, are looking for a press conference led by ECB President, Trichet, that leaves us no doubt that the ECB is still “vigilant” toward rates, and that present rates are still too accommodating. I would think the euro would get some love should Trichet give us that “hawk talk”.

The Bank of England (BOE) is meeting this morning too, and they too will keep a lid on interest rates this month, while I fully expect a rate hike from the BOE next month. The BOE did get to see another reason why they will be raising rates again when the latest printing of the U.K. Manufacturing report card, which rose for the first time in 3 months… That was November’s number… Add this report to the one that printed yesterday showing that the price of goods in the U.K. rose by the most in almost three years in December… Come to think of it, maybe the BOE will raise rates today! Nah… But they should!

The Aussie dollar had a good session overnight as their latest employment report once again showed strong growth in job creation. The December job creation was 44,600, which was three times the amount forecasted by the “experts”… The jobless rate in Australia is 4.6%… And that’s without playing games and cooking books… This strong jobs number follows November’s strong showing… So a trend for strong job growth is in play here, and that has to bring the Reserve Bank of Australia back to the rate hike table… Well, at least in my mind it does!

Yesterday I did a recent data report card for Australia… And now, this strong jobs number! I just can’t see this currency below 80-cents… But that’s where it is… Did I hear someone say, “Blue light special?” Must have been voices in my head!

Speaking of playing games and cooking books… The Bureau of Lies and Massaged numbers, AKA the Bureau of Labor Statistics, reported that their “birth / death model” was responsible for 55k of the 167k jobs reported as created last month. There are those that believe this “model” is worthy… Come on, I know you’re out there somewhere… But for my money… I think this is the most worthless exercise the BLS goes through! And what for? Ahhh grasshopper, to make us feel good! Admit it… You got a great feeling when the job creation report was printed on Friday, and 167k jobs were created… Unfortunately…. 55k were “ghost jobs”… I also did some “new math” and of the nearly 3.5 million jobs created in 2006, 1 million were created out of thin air by the BLS…

But don’t let that get in the way of a reason to buy the dollar!

Back to oil prices for a minute… OPEC’s President said this morning that the current price of oil, which stands at $53, is “Unacceptable”… Recall what I said when OPEC announced cuts in production a couple of months ago? I said that OPEC’s members cheated so much, that OPEC could call for a 50% cut in production, and it wouldn’t matter… OPEC’s President understands this and is calling for members to comply with the announced cuts… Good luck!

Don’t look now… But the Chinese renminbi just passed the Hong Kong dollar for the first time in 13 years! That’s right… The renminbi has climbed above “honkers”! Of course, I believe the renminbi would be far beyond “honkers” if the Chinese currency policy would loosen the belt, and allow greater flexibility…

There’s no real data in the U.S. today, except the usual Weekly Initial Jobless Claims… So unless that’s a real rogue report, I don’t expect much movement there… No, the Big Kahuna today is the press conference after the ECB meeting… Let’s see if Trichet can continue to be hawkish and keep the markets’ attention. I believe he can… But that remains to be seen, eh?

HEY! I was just heading to the Big Finish, and saw the currencies screen lighting up like a Christmas Tree… The Bank of England DID raise rates this month! The BOE raised rates 25 BPS to move their internal rate to 5.25%! See there! A Central Bank on the ball!

Currencies today: A$ .7830, kiwi .6905, C$ .8510, euro 1.2980, sterling 1.9490, Swiss .8033, ISK 71.90, rand 7.2850, krone 6.42, SEK 7.02, forint 196.40, zloty 2.98, koruna 21.38, yen 120, baht 35.90, sing 1.5410, HKD 7.80, INR 44.57, China 7.7945, pesos 10.98, dollar index 84.98, Silver $12.38, and Gold… $613.20

That’s it for today… Good Show by the Bank of England! HEY! I’ve got a question… Is Rachel Ray missing or something? Geez Louise, every cracker box I pick up has her picture on it! HAHAHAHAHA! Looks like the traders want to take the currencies higher after the BOE move… So this looks like a good day! Have a great Thursday!

Chuck Butler
EverBank World Markets