In This Issue.
* A$ & kiwi back to rallying.
* Eurozone IP prints weaker than expected.
* Swedish CPI prints negative.
* Watch out for year-end trading.
And, Now, Today's Pfennig For Your Thoughts!
RBNZ Greases The Rate Hike Tracks!
Good Day! And a Tub Thumpin' Thursday to you! Man is it cold outside! 7 degrees my phone told me it was outside this morning on my way to work. YIKES! It's time to sing a song to make it all go away. Little Jack Frost get lost, get lost. Little Jack Frost get lost. You know you don't do a thing but put a bit on my toes, freeze up the ground and take the bloom from the rose. Oh little Jack Frost go away, go away, and don't you come back another day! There! I told him!
Speaking of Frost. There certainly seems to be a chill that's been cast over Aussie dollar (A$) in the past few months. Every time the A$ seems to get some wind in its sails, along comes a vacuum sucking up all the wind. And yesterday was another example of the vacuum sucking up all of the A$'s wind. Recall, I told you yesterday that the traders were scared of the Employment report that would print Wednesday night, and so they sold A$'s, since the recent trend was for the jobs data to disappoint. Well, the jobs report actually printed better than expected with 21,000 jobs gained in November, VS 10,000 expected. But the Unemployment Rate rose to 5.8%, which is the highest rate since 2009.
And so, I guess the traders were correct in trading ahead of the report based on the recent results, but now they need to back track and reverse those losses they put on the A$ yesterday. It appears that the A$ is being bought again this morning, just not by the truck load at this point.
But what is being bought by the truck load is the New Zealand dollar / kiwi. The Reserve Bank of New Zealand (RBNZ) left no doubt at their meeting last night, of what they plan to do with interest rates next year and beyond. RBNZ Gov. Wheeler, said that, “the key rate will probably need to rise 225 basis points (2 ¼%) over the next 2 ¼ years. Talk about greasing the rate hike tracks! Recall when I told you that the markets were thinking that January might be the first rate hike for New Zealand? Well, I think it will be in the 1st QTR of 2014, but January might be rushing spring a bit.
There's something to be said about a country, and that country's currency, when their Central Bank is giving an indication that they are going into a rate hike cycle, when every other Central Bank around the world is cutting rates, buying bonds, printing money, and debasing their respective currencies like there's no tomorrow! I still think that New Zealand's Current Account Deficit is too high, but as I've explained many times in the past, having a large interest rate differential goes a long way in covering up the warts that a country may have. It all depends on the country. For you can get blinded by the light of high interest rates in a country that has major problems.
In Sweden this morning, their CPI (consumer inflation) missed its mark, printing a touch softer than expected. November CPI printed -.1% VS October, and was expected to be flat. This is not good news as the Riksbank (Sweden's Central Bank) is going to be meeting next week, and you don't want this to be the last thing they see before they decide what to do with rates! But it's done, and there's nothing that can be done about it now. The Riksbank was apparently on the fence with what to do with rates before the CPI print, so the krona is getting sold this morning on the thought that this CPI print will lead the Riksbank to a rate cut next week.
The euro traded above 1.38 yesterday. I had mentioned to Tim Smith, our metals guru, that 1.3832 was the 2013 high for the euro, and if the euro continued to trade up and through that figure, we could see a large move to the upside. But the single unit couldn't hold 1.38 yesterday, and then overnight, the euro lost a bit more ground (not much, but some) when a report from the 17-nation Eurozone showed that Industrial Production contracted in October. Yes, I know this is two month old data, and should be wrapped up with the left over fish from yesterday, but the markets think they know it all, and sold euros today, on two-month old data.
I spent a good amount of time talking about the euro in the January edition of the Review & Focus that was put to bed yesterday, and in the letter, I talked about how I thought that the euro could continue to move higher in 2014, and gave my reasons. So, you'll have to make certain you get your copy when it comes out! A teaser. that's what that is called. But keep in mind, that the markets are of the mind that the European Central Bank (ECB) is going to deliver another dovish message to them in 2014, while I don't think they will. I know I'm out on a limb all by myself here folks, so don't worry I picked out a nice big fat limb that will support me!
I always tell you how I learned very early in my trading career that “the markets are never wrong” but I've held to the idea that while they aren't wrong because the masses always follow them, it doesn't mean there isn't room for my idea. And a wise man told me something yesterday that I had heard a version of many years ago, and find it to be very apropos here. If the majority were always right, then the majority would be rich.
Yesterday, I mentioned my friend, Peter, who had sent me a great description of what the Fed was doing. Well, I didn't know this, but I mentioned him in the Pfennig yesterday and yesterday was his birthday! Talk about Karma flowing.
The Chinese decided that they had seen too much One-Way Street talk for their currency, and pushed it weaker overnight. The downward move wasn't huge nor did it erase the appreciation moves in the currency earlier this week. Just a reminder if you will, that they will not allow the markets to dictate where the currency goes as long as they maintain the conn on the renminbi / yuan. Once they decide to float the currency, then that's a different story, but for now, the Chinese still are the gatekeepers on the renminbi/ yuan.
So, with the renminbi / yuan weaker this morning, the rest of Asia is weaker too. The Singapore dollar, Indian rupee, and Japanese yen are all weaker. Now, don't go crazy here folks, these weaker moves are small, nothing to get all lathered up about, so settle down. That's it, nice and calm, take a sip of your coffee, dip that chocolate chip cookie in your coffee, now. Doesn't that feel better?
The British pound sterling continues to be well bid, which is somewhat surprising to me, in that they've got more problems that you can shake a stick at in England right now, and that should not be anything that is used as fuel to a currency rally. But it is what it is, and the pound sterling is 1.64 this morning. The last time the pound sterling was 1.64 it was going the other way (down) in April of 2011. The graph of the pound is crazy folks. I went back to 2010, and the ups and downs look like a jagged piece of broken glass, and is probably just as sharp and painful to whomever touches it, just like the holders of sterling experienced these past 4 years. But the rise from 1.48 in July of this year to 1.64 now, has been impressive I must say. But remember the jagged edged piece of broken glass.
Gold is down another $8 this morning. Earlier this week, it looked like we were putting the weak levels for Gold behind us and moving forward, but apparently not! I review the trading logs each day for the metals, and I've noticed that quite a few of our clients that held Gold are selling. That makes no sense to me, but then I don't buy Gold for just price gains. It's a store of wealth, and always has been, but here in the U.S. most investors treat Gold as a commodity that goes up and down in price only, and therefore the wild swings in the price. The rest of the world views Gold as a store of wealth, and an insurance policy. You know, you buy health insurance and hope you never need to use it, the same with flood insurance, and so on, the one you hope you really never need to use is life insurance, but you own these pay on them, and hold them, just in case.
Gold should be viewed the same way. But then that's just me. I'm just saying.
The U.S. Data Cupboard finally gets to some data today, with the November Retail Sales data, which are expected to be supported by auto sales, and the Christmas shopping season. For instance, the headline number is expected to increase .6%, but take out auto sales and it only increases .2%… We'll also see if the Weekly Initial Jobless Claims can show two consecutive weeks under 300,000. I doubt it can, but then who knows when it comes to surveys.
Which leads me to what I talked about earlier this week, regarding the employment surveys being embellished. I'm really surprised that the major media outlets didn't jump all over this news, but then they do have a problem with real investigative journalism. I did hear that one of the cookie cutter cable news outlets reported it, but just kind of did so, and then swept it under a rug. This is when I wish I were king, and I could dictate what got put on the news! I guess somebody else has that job right now. HA!
Before I head to the Big Finish today. Well, before I get out of here, and begin my annual Christmas Vacation, I wanted to bring something to everyone's attention as we head into the year-end. (I'll be back before year-end) As we draw closer to the end of the year, traders are going to be squaring up their books to close the year. That means a lot of short positions get closed out, which in past years, saw the currencies benefit from those shorts being closed, and cause an end of the year rally in the currencies. These rallies don't usually shake themselves out until about the 3rd week of the New Year, as it takes that long for everyone to come back to work, and figure out what they want to do in the new year.
So. don't chase markets higher. buy on weakness, sell on strength. remember that, and you'll never be caught trying to catch falling knives. This has been a public service announcement, had it been a real event you would have been instructed to head to the doors!
For What It's Worth. Yesterday I talked about the new Budget Accord, and discussed my problems with it. Apparently I wasn't the only one that had a problem with it. David Stockman who doesn't pull punches on this stuff was on CNBC talking with Rick Santelli about the Budget Accord. I pulled this from zerohedge.com, so let's listen in.
“Former OMB director David Stockman rages to none other than Rick Santelli that the budget deal is a “betrayal and a joke” and “the final surrender of the House Republican leadership to beltway politics.” The dismal reality – that little to no one in the mainstream media will dare utter – the budget adds $70 billion to spending this year and next year, and “then they're going to pretend to save it in '22 and '23.” Stockman blasts, “they've not only kicked the can down the road, but kicked it into low-earth orbit.” The only hope of getting our fiscal house in order was if House Republicans stand up, and Stockman warns “will trigger an enormous negative reaction from Tea-Party Republicans.” The truth hurts…
Santelli “we're not talking about kicking the timeline can till the mid-terms, ” – “this is a two-year vacation on the fiscal budget.”
“Just from the momentum built-in, our debt load will be $25 trillion by the end of the next Presidential cycle.”
Chuck again. Yes, smoke and mirrors, seems to have been used in the announcement of this Budget Accord. But one thing we must keep our eye on, and that is the expiration of the unemployment benefits for those unemployed for more than 6 months, that could come at the end of this year. By cutting it out and allowing it to expire we could say $25 Billion. Not a lot when you consider the size of our debt, but you have to start somewhere!
The thing that will really throw a spanner in the works if the benefit is allowed to expire, is that about 1.4 million workers will then be dropped from the “looking for work” category, which according to the mental giants that put this together, means the U.S. doesn't count you as unemployed any longer, and the Unemployment Rate would drop like a rock! Which would be misleading because on the outside it would appear that our labor picture is fine, but under the hood would be all these American workers out of jobs, and no longer counted as “unemployed”. Go figure.
To recap. The RBNZ left no one to confusion as they told us that rates will move higher by 225 Basis points in the next 2 years. You've got to love a Central Bank that is doing the opposite of what everyone else is doing! Eurozone Industrial Production was weaker than expected, and brought the euro back down from 1.38. Swedish CPI was negative and that's not a good thing ahead of the Riksbank meeting next week! And today is Retail Sales here in the U.S. take out the auto sales and there's not much there to be happy about.
Currencies today 12/12/13. American Style: A$ .9050, kiwi .8310, C$ .9460, euro 1.3780, sterling 1.6405, Swiss $1.1290, . European Style: rand 10.3670, krone 6.1640, SEK 6.5765, forint 219.95, zloty 3.0360, koruna 19.9160, RUB 32.73, yen 102.75, sing 1.2535, HKD 7.7535, INR 61.82, China 6.11150, pesos 13.05, BRL 2.3350, Dollar Index 79.90, Oil $97.46, 10-year 2.85%, Silver $19.73, Platinum $1,375.25, Palladium $728.95, and Gold.. $1,235.94
That's it for today. And this week for me, as I begin my annual Christmas vacation tomorrow. I will start my vacation off with my annual “shopping day” wink, wink. Our house guests are moving into their new house on Friday! Little Delaney Grace sat at the kitchen table with me last night and we sang Christmas songs, she's so adorable! She told her mom that she was going to stay with me until Mimi got back next week, so I wouldn't be alone. So adorable! I used to sing out loud, Christmas songs at house but then the chemo plays games with my voice now, so it's rare I find myself in strong enough voice to sing out loud. So. I hope that you have a Magical Christmas. It's such a fun time of year for me, and now that we have “little ones” around the house again it's even more fun! I worry about their future all the time, but at Christmas, I put that away and enjoy watching them have fun! So. there you go! In my December Review & Focus I left the readers with a line that I've used for several years now, and will use it here too. May the light of faith, the warm of heart, and the love of family be your gifts this Christmas.
EverBank World Markets