In This Issue.

*  Aussie trade deficit widens.
*  French PM disses the euro.
*  Rupee gains on hopes of a new policy.
*  Richard Russell on a Wednesday.

And Now. Today's A Pfennig For Your Thoughts.

Dollar Selling Ends After 3-Days.

Good Day! And a Wonderful Wednesday to you! When the USA soccer team / Team USA, puts together the tactical part of the beautiful game, to go along with their heart and soul and tenacity, they will be World Cup Champions. I don't doubt that at this stage of the soccer program in the U.S. and the way the millennials have taken to the game, that this will happen. It's just a matter of time. Oh, and in case you were stuck under a rock yesterday, Team USA lost 2-1 to Belgium.  It was a gut-wrenching game to watch, but Team USA never quit even after falling down 2-0 in extra time. I can relate to the “never quitting” thing, even after falling down to something, and it's with that thought that I put all this soccer talk behind, and get to the meat, before I have everyone saying, “Where's the beef?”

Well, the dollar made it through July 1st, without collapsing..  Wasn't that the call that was out there? That July 1st would bring about the implementation of the FATCA law, and some pundits thought that the dollar would collapse on this implementation. Or maybe, not exactly on July 1st, but eventually because of FATCA.  You know that I have shrugged off that notion in these pages, thinking that at most some slippage in the dollar might be seen from FATCA, but a collapse? There are bigger fish to fry that will cause that to happen folks.

On a sidebar. I was reading my latest edition of the Economist on Monday, and came across something in those pages that talked about the costs of implementing FATCA by financial institutions will be greater than the revenue received in taxes from the new law.   Seems pretty ridiculous that we have to make these foreign financial institutions become regulating arms of the IRS. But then, that's just my take on it.

Well, the selling of the dollar lasted 3-days (Friday, Monday & Tuesday). The Aussie dollar  (A$) was knocking on the door to 95-cents, the euro was doing the same to 1.37, and most currencies were falling in behind these two leaders. But that was yesterday, all my troubles seemed so far away, but now they're here to stay. Well, they aren't “my troubles” but that's the song that the A$ and euro are singing this morning. Let's go to the tape to see what's going on with these two.

First, we have the A$, which is the worst performing currency in the overnight and morning sessions, and it found itself on the chopping blocks when the Aussie May Trade Balance report printed and showed that the Trade Deficit was far wider than expected.  May's Trade Balance was a deficit of A$1.9 Billion, when only A$ .2Billion was expected. This widening of the Trade Deficit immediately put the focus on the A$'s strength. I was surprised that an Reserve Bank of Australia (RBA) official didn't come out and give it the old, “See, we told you that the currency was too strong” speech.. But they didn't have to, as the markets got the memo, and sold A$'s. The A$ is still well above 94-cents, but no longer knocking on the door to 95-cents.

Then the euro. Here, it was a Frenchman that did the dirty deed on the euro. French PM Valls, emphasized, in an interview, that the euro is overvalued, and “bad for industry and growth”. He also went down the road of calling out to the European Central Bank (ECB) and letting them know that he believes that “monetary policy can't just be about interest rates”.  And then went on to say that the ECB, “should do more to weaken the euro”. 

I have to say that I'm somewhat surprised that these comments, which are a common occurrence in France, moved the euro in the way that it did. Given that thought by me, I would also add that I believe this effect on the euro will be short-lived. This is not a multi-day market moving comment, and therefore, this might be a good opportunity to buy at a cheaper level.

Speaking of the ECB, remember that on Monday I told you that they would be meeting on Thursday, which is tomorrow by my calculations!  So, the French PM might get his wish tomorrow.. And then again, he probably won't! I would think that given all the changes to monetary policy that was made last month by the ECB, that they would take a breather this month.

I also told you on Monday that Sweden's Riksbank would be meeting this Thursday too, and if it's going to be Thursday for the ECB, it will also be Thursday for the Riksbank! HA!  You may also recall that I said that there was a very good chance that the Riksbank would cut rates at this meeting. And that thought has the Swedish krona on the run (the wrong way that is) this week. Knowing this, what more could the Riksbank  do to make the krona sell even more tomorrow? I can't think of anything, and so, I'm saying that the rate cut is fully priced in the krona right now. If the Riksbank does something like moving their bias from tightening to neutral, the krona could get a nice recovery bounce.

In New Zealand, the New Zealand dollar / kiwi is flat today, but looking as if it wants to sell in sympathy with the A$…  Last night a report printed and showed that Business Confidence is still strong, but has slipped a bit from the lofty highs of a month ago. Remember, that a month ago, the Reserve Bank of New Zealand  (RBNZ) hike rates for a 3rd time in this cycle. So, I would think that it's normal for Business Confidence to take a hit after 3 rate hikes, and the thoughts of a 4th one on the horizon.  But it's not just about rate hikes here. From what I read, Dairy and Forestry export prices are falling, but kiwi keeps rising, thus making it difficult for businesses to take advantage of the falling prices (in exports) while kiwi keeps getting stronger, thus offsetting the cheaper commodity prices.  I've also read that the New Zealand housing market, which was getting quite Bubblicious is leveling out.

The economy in New Zealand is still going and growing strong, and I'm sure the RBNZ is fine with this slippage in Business Confidence, and the RBNZ feels that the economy was growing too strong, too fast! So, this doesn't change my mind about a 4th rate hike this year, what it does do, it push it further out on the calendar this year.

In Asia overnight, the Chinese renminbi / yuan was weakened, and the Indian rupee strengthened. Rupees got a boost when it was announced that the new Indian Gov't is looking at allowing all foreign investors to buy government bonds from a $10 Billion quota earmarked for sovereign Wealth and pension funds. Inflation in India is still a problem, and with Oil sitting above $100 inflation will remain a problem.. But the new Indian Gov't needs to focus on unlocking the Indian economy, and not these short-term problems. Hike rates, and be done with it, there's no need to make a big production out of something that simple. Once the new Gov't learns this, they'll get the hang of keeping a lid on inflation, and providing price stability, which in the end, is a central bank's main goal, right?

Elsewhere in Asia, the Singapore dollar (S$) remains stuck in a very tight range between 1.2475 and 1.2525. Singapore will print their version of a PMI (manufacturing index) today, and the experts think it will show an improvement in June from the 50.8 reading in May. The Monetary Authority of Singapore (MAS) the people in charge of setting the trading bands for the S$, have been quite quiet in recent weeks, as the economic data from Singapore prints with better results. With that in mind, I would think the S$ is destined to remain in the range we just talked about.

Well, Gold tried to pick itself up off the floor yesterday, but each time it did, the shiny metal got knocked back down. And this morning, it looks like more of the same kind of trading, while Silver, Platinum and Palladium all book small gains. Platinum crossed the $1,500 handle yesterday, and is adding to its gains this morning. The new Review & Focus just hit the newsstands and it is smoking hot with a write up on Silver. Let me give you the lead in on the Silver article in the Review & Focus, to whet your whistle. “First of all, industrial demand for Silver has increased substantially over the past two-decades. Silver products provide a unique combination of properties that make it ideal for application in industries ranging from health and medicine to electronics, communication, solar power an, batteries, superconductors and computers. So, who said metals are dead in the water?  Not me!

Here in the U.S. I keep hearing more and more pundits and economists talking about inflation, as if it's something new and exciting for them! Where have they been?  Long time readers know that I know Bill Bonner, and read his letter, Diary of a Rogue Economist, religiously.  Yesterday, Bill had this little ditty, that plays well in the sandbox with something I wrote about last week, regarding inflation here in the U.S. I think you'll want to read this bit.

“There's the official inflation rate. And then there's the real one.

A new report from the American Institute for Economic Research shows how rising costs for certain necessities make many Americans' personal inflation rate much higher.

So, while the CPI is up 47% since 2000, the institute's Everyday Price Index (EPI) is up 69%. Unlike the CPI, which tracks more than 200 categories from breakfast cereal to funeral expenses, the Everyday index includes only the prices of frequently purchased goods and services.

Barron's goes on to tell us we can avoid these higher costs by not owning a house or a car… by not eating much and remaining young forever. “For aging Americans,” the report continues, “it's rising health-care costs that really hurt.”

Chuck again. As Bill says, and I agree 100%… “Well that does it for us. We weren't that keen on aging anyway” HA! But seriously. We all know, no let me restate that, most of us know, for there are still those out there that think deflation is our nemesis, that inflation is a real problem now, and will become an even bigger problem  as the Fed unwinds their bond buying, and all that money that's been added by typing into bank's computers will flood the economy.

And I think this is a good place to let David Stockman, you know the guy that was the Budget Chief for Ronald Reagan, speak.  He was talking about the awful print of Personal Spending that we've talked at length about in the past week. “Not only did American consumers not come bounding out of their winter ice caves as predicted by virtually every 'sell side' economist, the number actually embodied a case of groundhog economics.” 

So, I guess we're going to go to the U.S. Data Cupboard! I wasn't intending to go there yet, but I started down that road with inflation, and here we are!

The U.S. Data Cupboard yesterday printed its version of the PMI called the ISM (they are all manufacturing indexes) , and the June ISM slipped a little below May's number and printed quite a bit below the expectations.  So, let's lay this all out. June ISM printed at 55.3, which is a good reading, but below the expectations of 55.9 and May's number of 55.4. So, while the index number is still strong, it did show some slippage in June, and there was no bad weather to blame, so this news just got passed over.. and the markets shifted to Vehicle Sales, which, as I told you would probably be the case, printed a better than expected number.

Today, we will see the color of the ADP Employment Change report for June, which is expected to print at 205,000. We'll also see May Factory Orders. And here's where I think we'll see another picture of an economy that's going nowhere, as Factory Orders are expected to be negative.  And then don't forget that tomorrow, we'll have the Jobs Jamboree, since Friday is Independence Day in the U.S.    Today is Independence Day in Canada. So. Happy Independence Day to our friends up North!  

And let's not forget that whenever we have a national holiday on a Friday, that the markets close early on Thursday, so that the boys and girls in NYC can head to the Hamptons. So, we'll jam all that stuff into a ½-day tomorrow. You'll need to strap yourself in, and keep your arms and legs inside at all times!

For What It's Worth. Just when I was thinking yesterday that I hadn't heard from or seen anything from the great Richard Russell in a couple of weeks, there before my eye, was Richard on Let's listen in to see what Richard is talking about this week..

“My single biggest worry is the US dollar. It's now clear that Russia and China are out to diminish the future of the dollar, which is the world's reserve currency. To do this, they would have international trading done in non-dollar currencies. The preferred currencies would be the Chinese yuan and the Russian ruble.

With the federal government and Federal Reserve locked in their respective system of destructive fiscal and monetary policies, a related, continuing massive loss of global and domestic confidence in the US dollar, should lead to an outright dumping of the US currency in the global markets, setting the initial stages of a hyperinflationary great depression. The timing of the hyperinflation onset by the end of 2014 remains in place, with the odds of that occurrence estimated at 90%.”

Chuck again. Richard goes on to talk about in times like this, investors should be in precious metals or diamonds, or farmland. I've read Richard Russell for many, many years folks, and I don't think I've ever heard him talk like this. Makes you wonder doesn't it?

To recap. The 3-day dollar selling ended with a bang overnight, as the two leaders of the currencies rally, the A$ and euro, were sold on weak data, and jawboning. Tomorrow will be a day heavy with “stuff” like ECB & Riksbank meetings, the Jobs Jamboree in the U.S. and a shortened day with a holiday on Friday. Platinum crosses $1,500 and is looking pretty perky as Gold wallows in the mud. And the U.S. data was once again mixed yesterday, with the ISM slipping, but Vehicle Sales kicking rear and taking names later!

Currencies today 7/2/14. American Style: A$ .9455, kiwi .8775, C$ .9405, euro 1.3665, sterling 1.7170, Swiss $1.1260, . European Style: rand 10.7115, krone 6.1685, SEK 6.6935, forint 227.60, zloty 3.0335, koruna 20.0640, RUB 34.21, yen 101.50, sing 1.2460, HKD 7.75, INR 59.66, China 6.1549, pesos 12.94, BRL 2.2010, Dollar Index 79.86, Oil $105, 10-year 2.55%, Silver $21.06, Platinum $1,514.12, Palladium $855.93, and Gold. $1,327.20

That's it for today. Earth Wind & Fire are singing their hit song: September. Now that's a song to get you dancing! Cardinals call up their phenom outfielder to wake up the offense, and they go out and get shut-out! UGH! It's just not their year, they have this big target on their backs from winning so much in recent years, and they picked a bad time to quit hitting. 24 took another twist last night, and once again had me on the edge of my seat. Only 2 more episodes. Me & Mrs. Jones by Billy Paul is now on the IPod. The last time it was on, Antione was here, and he told me he couldn't get that song out of his head all day, so it's good it played before he arrives!  I got to finally meet the young lady that reviews the Pfennig each day, yesterday. I would say that it was about time, eh Valerie? I had a good day yesterday, and today is starting out OK. I hope this lasts through the weekend, but, I won't hold my breath, because usually 2-3 days of feeling good like this is about all I can squeeze out of the turnip.. But you never know! And with that, let's go make this a Wonderful Wednesday!

Chuck Butler
EverBank World Markets