A Pfennig For Your Thoughts

In This Issue…

  • A rotten day for the currencies…
  • Rate hike talk in the U.S. again!
  • Koizumi’s diabolical plan uncovered!
  • Renminbi and Asian Currencies…

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And Now… Today’s Pfennig!

Stomping On Dead Bugs…

Good day… Well… A rotten day and overnight session for the currencies, as the talk has shifted back to the U.S. and how many arrows Big Ben has in his rate hike quiver… Why? I would have thought this discussion was akin to stomping on a dead bug! But… And that’s a big But… One that probably needs a red flag on it… This is what the market is focusing on now…

Sort of like my little buddy’s eating habits… He gets fixated on one kind of food, and that’s all he craves… First it was corn on the cob… then chicken strips… Then pizza… Now cheeseburgers… Crazy! (I would like it if that list had broccoli on it!) Anyway, the market is so focused on the U.S. rate hikes, it doesn’t even notice that the Fed is getting near the end, while other Central Banks are just winding up the rate hike music box!

Today, the Bank of Canada will meet, and I expect them to raise another 25 BPS… Recall last week, when I talked about the loonie, and I said that I expected it to back off the recent highs, and when it did, to take advantage of the dip in price? Well… The dip happened yesterday… The loonie is trading over 1 cent lower than last week… But if the Bank of Canada comes through with the old one-two today… A rate hike, and a strong hawkish statement, this blue light special price may not last long! Did I hear someone say, “Attention loonie shoppers”?…

Yesterday, the non-market moving data in the U.S. showed Factory Orders slipping by 4.5% in January… And Pending Home Sales falling 1.1%, also in January… Just more in the line of “mixed reviews” for the U.S. economy. Today, we’ll see the Productivity data for the 4th Quarter, and it’s expected to fall 0.1%… We’ll also see Consumer Credit for January rise by $5 billion… Still nothing to crow about economy-wise, but the dollar bulls will do it and not feel guilty!

Friday will be a Jobs Jamboree Friday, and as I look ahead, the “experts” are calling for a rise in job creation for February of 210K… Of course, you know me, I really don’t care about how many jobs are created, due to the fact that these numbers are basted and baked every month by the Bureau of Labor Statistics… As I’ve said over and over again through the years, what we should really be focusing on is the Average Hourly Earnings, which are expected to be weaker, and the Average Weekly Hours, which is expected to remain on pace with the previous month.

OK… So now we’ve looked at these, what do they tell us? Ahhh, grasshopper… Come sit… The Average Hourly Earnings gives us a snapshot of future wage pressures on inflation… So… If the Avg. Hourly Earnings falls, that means workers are making less, which means there will be no wage pressures… And the Average Weekly Hours? Ahhh… Again, grasshopper, this shows us just how hard workers are having to work to make the Avg. Hourly Earnings… For February, the Avg. Weekly Hours is expected to remain at 33.8… So that means that workers are working the same hours but making less…

This has been going on for some time now… I don’t know how many times I’ve harped on the fact that Personal Income continues to fall… Personal Spending continues to rise, and the net savings has turned negative! What’s going to fuel this so-called robust economy?

Well… Enough of that! On to Japan… Well… PM Koizumi has gotten his way once again, and has jawboned the yen lower vs. the dollar… I would think that by now the markets know exactly what he’s up to… But they still back off, roll over and wait for him to rub their collective bellies whenever he speaks… We’re almost back to 118 in the yen again… When last week things looked so promising as it touched 115, but then along came Koizumi… Thanks big guy, you really warmed the hearts of yen owners! NOT!

However, as I’ve said previously, I think Koizumi did this to weaken the yen ahead of the Bank of Japan meeting that has the potential to really light a fire under the yen, pushing it higher… So only from the mind of Koizumi, if yen starts out much weaker when it begins to strengthen, then the end result won’t be as bad… Warped mind… But I see through his diabolical plan!

With the yen backing off so much, the Chinese renminbi had nowhere to go but down vs. the dollar last night… No biggie, but it does prove the point I’ve been making since the peg to the dollar was removed on July 21st of last year. The renminbi is allowed to move more on a daily basis vs. the Asian currencies in the basket than it can vs. the dollar… So to put pressure on the renminbi to move higher vs. the dollar, the Asian currencies must get stronger faster… And that was happening, and the renminbi was getting stronger vs. the dollar every day… But now this and the reverse is happening… Just proves my point!

The Mexican peso has been seeing a lot of selling pressure lately… This has all the makings of carry trades unwinding here, too! One would think that with oil prices remaining high, the peso would be basking in the sun… But not so… And that’s what makes me think of the unwinding of carry trades…

Well… Our first day of being in the precious metals business was interesting… Sure was busy… And our first day certainly gave those ready to run at the sound of the starter’s gun a nice dip in prices of both gold and silver!

Currencies today: A$ .7355, kiwi .65, C$ .8740, euro 1.1910, sterling 1.7270, Swiss .7630, ISK 66.75, rand 6.32, krone 6.71, forint 214.66, zloty 3.24, koruna 24.1660, yen 117.90, baht 39.05, sing 1.6325, China 8.0425, pesos 10.74, dollar index 90.61, silver $10.01, and gold… $554.10

That’s it for today… Sad news last night about Kirby Puckett, eh? The Hall of Famer passed away at the age of 45… I’ve got a lot to clean up on my desk from yesterday’s craziness, and with our little Christine / Caroline out this week, I’m even further behind than usual on a Tuesday! So… As the Big Boss, Frank Trotter, says… Onward and upward! Have a great Tuesday!

Chuck Butler
EverBank World Markets