In This Issue.

*  Richmond disappoints
*  Tapering talk in control
*  Rand on top
*  Chuck on Canada

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

Another day in the right direction.

Good day.and welcome to Wednesday morning. Chris and I have split duty this week so this will take care of it for me as he will bring it tomorrow and Friday. Not to worry though, I'll be back with you bright and early all of next week. The heat,  measured by both a thermometer as well as the currency market, remained on the rise but it took a while for the currencies to gather steam. As I left you yesterday morning, the dollar was slightly higher and there was no real direction in the market but we ended up with another decent day.

More on currencies in a bit, but let's first take a look at yesterday's data even though it was limited and generally seen as second tier in nature. The May home price index from the Federal Housing Finance Agency did show a year over year rise of 7.3% for all of the reasons I talked about yesterday with limited supply being the biggest factor. The monthly increase, that is the rise from April to May, actually came in a smidge lower than expected with April's number given a small downward revision. Just for the record, the estimate was for a monthly increase in May of 0.8% instead of the actual 0.7% result.

The other report, the Richmond Fed manufacturing index, took me by surprise on two levels. First, the report posted a horrible result. The index dropped to -11 in July and fell well below June's reading of 7 as well as falling short of the expected result of 9. This report paints an entirely different picture than what the Philly and New York reports gave us as both ended up in positive territory and showed improvement. Most of the individual components, as you would guess, showed deterioration but interesting enough, most of the manufacturers remained optimistic over the next six months.

The two components that took the biggest hits were new orders and shipments. I would consider those important, if not the most important, components so manufacturing continues to be hit or miss. The second thing that took me by surprise was the fact traders didn't brush the report aside and actually traded on the news. Now, I don't know if they were truly interested or if there was just nothing else to look at but things began to move right after the index hit the airwaves. Since the Fed is hitching their tapering wagon to economic data, maybe we'll see all reports viewed under a microscope going forward in an attempt to keep score at home.

Speaking of manufacturing, we'll get to see the preliminary Markit Flash PMI report for July. This isn't the official manufacturing number but is just one of the many gauges out there. Anyway, most economists are expecting a rise in July from June to 52.6. If the other regional reports are any indication, I guess I'll buy it, but I wouldn't expect any good or bad surprises with this one. The other report due today is similar to what we saw on Monday, only it will measure new home sales in June. Nothing to speak of here. Its expected to show what we've already seen and continue to show that housing remains on the right side of the tracks.

Moving on to currencies, it turned out to be a productive day for most. As I mentioned, we came out of the starters block on the slow side but kept a nice and measured pace for much of the day. In fact, the dollar index was trading with an 81 handle as I was packing my things for the evening. The underlying theme so far this week has been rising speculation the Fed could delay any near term plans on tapering, or what Chuck calls a taper tantrum, since recent data hasn't exactly impressed anyone. There have been a lot of long dollar positions accumulating over the past several months, so Bernanke's willingness to not taper if the economic outlook slows is ringing louder and louder in the ears of traders.

With that said, however, a recent poll shows that most economists still anticipate the Fed reducing the monthly bond buying program by $20 billion to $65 billion each month starting in September. The month of September will also give us the Fed's updated forecasts for growth, unemployment, and inflation so its shaping up to be a big month already. I think the markets have also gotten over the initial knee jerk reaction and are more comfortable with the fact that tapering is not tightening so even though stimulus measures might be reduced, it will be quite a while before we see a rate hike.

The top performing currencies from yesterday all had at least 1% gains and included the rand, Norwegian krone, and real. The rand was actually closer to a 1.5% gain and relished its moment in the top spot after taking frequent beatings for the better part of a year. The news which catapulted the currency higher came in the way of a policy maker's comment about the interest rate environment. The central bank stated that the rand's weakness, together with higher inflation increases for wages and administered prices, are limiting economic growth. In other words, a weaker rand is adding to inflation pressures. As a result, the scope for cutting rates further is limited and has put prior talk of more rate hikes on the back burner.

Again, data has been limited but we did see July euro area consumer confidence rise more than expected and hit a two year high. While it still remains in negative territory and below long term averages, unemployment at record highs should keep a lid on confidence from increasing. I also saw a report where economists are calling for third quarter growth to come in at a positive number and end the streak of negative prints. Draghi said earlier this month that interest rates in the euro area would stay low as long as the economy struggles, lending is weak, and inflation pressures subdued.

Other than that, the only other meaningful data report came in the way of Canadian retail sales. Chuck has been a huge help for me this week and came to my rescue again, so let's take a listen:

OK. Another day in beautiful Vancouver had me thinking a lot about Canada and the Canadian dollar / loonie. I wrote about 6 weeks ago how my guitar playing friend, Dr. Steve Sjuggerud, had talked about the loonie and how I said that maybe it could be a shining light through all this noise in the currencies. I also told you about a Canadian reader that reminded me several times that the Canadian economy wasn't as strong as it appeared and how I had illustrated.  Well. I thought long and hard about all that yesterday, when I read in the Globe and Mail that Canadian Retail Sales for May beat the expectations easily.

Even if I take out the gas and cars like I did for the U.S. Retail Sales, Canadian May Retail Sales were up 1.2% (with gas & cars, up 1.9%) That's a huge jump from April's .2% gain. And should give a nice boost to 2nd QTR GDP for Canada.  I don't mean to be higher than a kite about the loonie here folks. I just want to point out that the Canadian economy is still going good, even with some housing bubble problems in Vancouver and Toronto. 

Other than that. The Big Boss Frank Trotter, is scheduled to arrive here in Vancouver today (Tuesday) as we will host a reception for the conference attendees tonight. He speaks to the crowd on Wednesday and I have a go of it on Thursday. Over the many years that I've spoken at this conference, I've tried to have some fun with my talks, and this year will be no different. I speak how I write, if you've never heard me speak before, consider yourself lucky!   So.  here's your update from Vancouver. I hear Chris has the conn tomorrow, thanks Mike for taking the conn these first three days this week!

As I came in this morning, the dollar index was barely hanging onto the 82 handle so the dollar, in general, is up but not by much. It's the same old story that we've seen over the past several days in that not much direction to start the day. The only currency in the dumps so far today is the Australian dollar as we had a Chinese manufacturing report disappoint and was more than enough to offset the higher second quarter Australian inflation data. Other than that, everything else is fairly tame.

For What It's Worth.A snippet from Richard Russell. ''For months we've been listening to horror stories about gold.  Gold is not money, gold is overpriced, gold is a has-been, gold is too expensive compared with copper, gold's bull market is over, gold has been manipulated, gold is being accumulated by China, India and Asia, gold is just a shiny relic of previous ages, gold is actually worth $750 an ounce, gold (says billionaire Warren Buffett) is a waste of time.

Put it all together and, for me, it's worth absolutely nothing.  I just watch the price of gold, and I eliminate all the noise and goof-ball comments.  As far as gold is concerned, what I really care about is PRICE.  Furthermore, I care about whether a trail of daily gold prices are forming a recognizable chart pattern.

OK, let's forget about all the talk and opinions and the gossip and noise . . . First, I note that the price of gold has turned up from gold's recent low.  Then I note that gold is approaching a (blue) declining trendline.  Interestingly, the trendline and gold's (blue) 50-day moving average are almost meeting at this time.  If gold can rally to 1350, it will have climbed above both the declining trendline and its 50-day MA.  Next, I note that the RSI (relative strength) line for gold is rising and is near the neutral level of 50.  Finally, I see that MACD has formed a series of rising lows and has tuned up.  The histograms are on the plus side.  All in all, gold, despite the noise and negative opinions, looks good to me.''

''My conclusion is that gold is looking good on the chart, and the chart is made up of a series of prices.   I don't care what the noise and gossip is, just give me the prices, and I'll make up my own mind.

Conclusion — Price is reality, and price-reality trumps all the talk and opinions.''

Couldn't have said it any better!!

To recap.Recent data, including yesterday's Richmond regional manufacturing index, have been on the disappointing end of the spectrum and is giving investors a reason to sell the dollar. With that said, most economists still see the Fed beginning to taper in Sept but recent data leaves the door open to stall. We get a manufacturing report and new home sales today and the top three currencies posted at least 1% gains yesterday. Talk of interest rates possibly sitting on a bottom in South Africa caused the rand to rise 1.5%. Chuck gives us an update on Canada.

Currencies today 7/24/13. American Style: A$ .9223, kiwi .7973, C$ .9732, euro 1.3239, sterling 1.5345, Swiss $1.0689, . European Style: rand 9.6462, krone 5.8830, SEK 6.4613, forint 223.76, zloty 3.1785, koruna 19.6016, RUB 32.3055, yen 100.07, sing 1.2663, HKD 7.7573, INR 59.1250, China 6.1695, pesos 12.4893, BRL 2.2139, Dollar Index 82.01, Oil $107.30, 10-year 2.55%, Silver $20.37, Platinum $1,446.65, Palladium $736.90, and Gold. $1,342.25

That's it for today.I was listening to the radio on the way home last night and in between ten different mortgage guys telling me that I needed to refinance, I was reminded that football is just around the corner. In fact, the Rams will have their first full workout tomorrow and the first pre-season game is only a couple weeks thereafter. It feels like yesterday when I was watching the Harbaugh brothers battling it out in the Super Bowl. Well enough football talk for today. Like I mentioned, thats it for me until next week, so until then.Have a Great Day!

Mike Meyer
Assistant Vice President
EverBank World Markets