A Pfennig For Your Thoughts

In This Issue…

  • Range bound
  • UK, Canada & Australia keep rates unchanged
  • Déjà vu all over again
  • 6.01% on checking accounts!

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And Now… Today’s Pfennig!

Range Bound…

Good day… We had more of the same yesterday, as the currency markets seem to be stuck in a tight range with no data to move them. Today we will get the weekly jobs data along with wholesale inventories and tomorrow the only piece of data will be consumer credit. Don’t look for any “market-moving” numbers, just more of the same range trading until next week.

Before leaving last night, Chuck shared his thoughts on the numbers that were released yesterday. “Second-quarter productivity growth for the nonfarm business sector grew at a 1.6% pace, bang on the forecast level. Unit labor costs increased by 4.9% relative to the first quarter pace, well above the consensus forecast for a 3.8% rise, and first-quarter unit labor costs were revised to show an astounding 9.0% increase from 2.5% previously. Given the larger-than-expected outcome on second quarter unit labor costs and the big upward revision in the first, the data provided the dollar with some food for rallying, which it did most of the day.” The dollar rally Chuck talked about was mostly reversed in Asian trading overnight, placing the dollar just slightly higher than where it was yesterday morning.

Jobless claims due out later this morning will likely come in unchanged from last week at approx. 315,000. While these weekly numbers won’t show a major change in employment, announcements by Ford and Intel of large workforce reductions reflect a growing concern regarding the U.S. economy. A weak job market will likely keep the FOMC from raising rates, in spite of inflationary pressures.

The pound sterling took a breather from its recent rally as the Bank of England kept rates unchanged this morning. The UK gave back some of its recent strength vs. the euro yesterday as the traders squared positions in front of the rate announcement. Recent calls for Tony Blair’s resignation have also weighed down the pound sterling. The UK Prime Minister will promise to quit sometime in the summer of 2007, according to the BBC and Financial Times. But declines in the pound should be limited after an industry report showed UK house prices increased in August for a second month. Prices rose 1 percent for the month, and 8.2 percent on the year. A resurgence in the housing sector will likely force the BOE to raise rates at least one more time this year.

Chuck pointed out that two other central banks kept a lid on rates Wednesday… “The Bank of Canada and the Reserve Bank of Australia. Neither of the two were expected to raise rates at this meeting; however, there was a whispering campaign circling the markets that the Bank of Canada might announce that a weakening bias had been taken. When that did not come to fruition, the loonie rallied the rest of the day.

The Reserve Bank of Australia’s (RBA) meeting was really just a celebratory meeting for the departing Gov. John Macfarlane. However, with GDP growth slowing in Australia, there have been some to suggest that the RBA is finished raising rates. Growth may have slowed, but inflation has not, and therefore I’m keeping a light on for another rate hike in November…”

The news started arriving from the Asia-Pacific finance ministers’ meeting, and it sounds very familiar. U.S. Treasury Secretary Henry Paulson, on his first trip to Asia since taking office, is calling on the finance ministers to call for more flexible exchange rates along with refocusing on the stalled Doha round of trade talks aimed at reducing global trade barriers. A draft statement released yesterday said the region should boost exchange-rate flexibility to help resolve trade imbalances. (SOUND FAMILIAR?) This is the same lip service these finance ministers give us during every meeting. Until the big dog on the porch, China, decides to let their currency appreciate, these announcements will do nothing to change the global imbalances.

After this Asia-Pacific meeting, Paulson will stay in Asia to meet with finance ministers and central bank governors at the G7 conference in Singapore next week. As mentioned in yesterday’s Pfennig, China may decide to let the renminbi strengthen a little faster going into the G7 meeting as a way to try to alleviate some of the pressure. “Greater exchange-rate flexibility” is viewed by everyone as a good thing, but China will continue to move at their own pace, which means a gradual appreciation.

Before moving on to the currency wrap-up, I wanted to point out our newly announced introductory rate on our checking account. When we started EverBank (at the time everbank.com) our interest rate on our FreeNet Checking account was 6.01%… As they say, history repeats itself… Our Introductory Rate (for 3 months) on our FreeNet Checking Account is 6.01% again! Check out our website for additional information!

Currencies today: A$ .7623, kiwi .6460, C$ .9042, euro 1.2733, sterling 1.8756, Swiss .8052, ISK 70.00, rand 7.39, krone 6.414, SEK 7.31, forint 216.71, zloty 3.11, koruna 22.16, yen 116.07, baht 37.34, sing 1.5676, INR 46.21, China 7.9409, pesos 11.02, dollar index 85.34, silver $13.07, and gold… $633.89

That’s it for today… Our closer failed to close another game yesterday, giving up a game winning double in the ninth (UGH!!!) Oh well, NFL football starts tonight. Hope everyone has a great Thursday!

Filling in for Chuck Butler:

Chris Gaffney, CFA
Vice President
EverBank World Markets