The Big Dog, euro (EUR) has stretched its gains versus the dollar overnight. The single unit did see a brief period of selling that amounted to about 1/4 cent, after it was reported that German consumer confidence unexpectedly declined for the first time since September 2008, last month… The European traders shrugged it off and went back to pushing the dollar down. It will be interesting to see what the NY traders do when they see this data… I personally doubt it will amount to a hill of beans for the NY traders, but we’ll have to wait-n-see, eh?
On Friday, the Swiss franc (CHF) hit parity to the dollar… I was not here to see it, obviously, but Chris tells me the franc’s strong move on Friday morning was the result of a Morgan Stanley report. The report said that the recovering European economy and accelerating inflation would keep the central bank from selling the Swiss franc in order to push it lower versus the euro and the dollar.
The franc is back below parity this morning, as that level brought about some profit taking, but I don’t expect for this move back below parity to last too long.
Chris also told me that Bank of Canada (BOC) Governor Carney was sending out warnings that the markets had taken the loonie (CAD) too high… Carney doesn’t believe the inflation fears are unwarranted, and that he might have to keep an option open to weaken the currency (by selling it) should this continue… OK, what we have here is a failure to communicate! Carney isn’t going to intervene except with his jawbone, folks!
At least I don’t think Carney will intervene… It’s not that I know something that everybody else doesn’t know about his situation, it’s just a hunch on my part. But as Chris mentioned in his note to me, with commodity prices continuing to rise, thus taking the loonie along for the ride, we’ll get to see just what Mr. Carney has up his sleeve!
Still, though, the fear that the BOC could step in and cause losses to currency traders does carry some weight, at least until the markets push the envelope inch by inch to see if the central bank bites. If it doesn’t bite, then they will push a little more… Eventually, they’ll see that the central bank is not going to intervene, and then the cow is out of the barn!
The other commodity currencies of Australia (AUD), New Zealand (NZD), Brazil (BRL) and Norway (NOK) continue to inch higher versus the dollar as we go along here day to day. With this being the last week of October, we’ll soon be turning the calendar pages to November, which just might bring us another rate hike in Australia, and the first hikes from Norway and New Zealand. Brazil has stated that rates need to go up 200 basis points (2%) but has not given any timeline for that to take place.
I spent a lot of time last week talking about the interest rate/yield differentials and how that’s going to be the next thing to beat down the dollar… And November has the potential to be a month of fireworks regarding rate hikes, and rate/yield differentials.
Last Thursday, I told you about China’s reported +8.9% economic growth… And since then, I’ve read quite a few stories from people who do not believe China’s claim… All have their reasons for saying that… I recall a conversation I had with a customer a month ago who had lived and had a business in China… He told me that whatever the Chinese say, believe half of it… So, with that in mind… If the Chinese say they grew +8.9%, then 1/2 of that would be +4.45%… And that’s still far greater than any country on this earth!
Well… Here in the US, the number of bank failures this year topped 100, last week… I believe the number is now 106 for 2009… 106 bank failures… Six would seem to be too many for my taste, but then add another 100! OUCH! All these failures and bailouts and TARP and TALF and back rooms deals to keep firms alive… And here at EverBank, we just continue to grow… OK, I’m slapping us on the back… But I just couldn’t pass up that opportunity!
OK, getting back to the failed banks… Why didn’t the government bail out these banks? Well, I think we all know that answer, but it kind of ticks you off doesn’t it? I’m not for bailouts, but shoot Rudy, once you start something like that, where do you draw the line? Oh! You silly bird! You know exactly where the government drew the line! With Lehman Brothers! Of which I still contend had some conspiracy undertones to it, with Lehman being Goldman’s chief competition, and all.
I was gone for a minute… Did you miss me? HA! No I slid my chair over to take a closer look at the economic calendar for this week that I pulled up on my trusty Bloomie! It looks as though the data we do get this week will show that the US economy is healing ever so slightly…
Anyway… The data this week includes the S&P/CaseShiller Home Price Index, and other “stuff”… And by week’s end, like I said, the data should show healing… But, if the trading theme plays out, that would be bad for the dollar!
Confused? Well, you’re probably a newer reader, and so… For you, I’ll explain… The trading theme for the currencies for over six months now has been to punish the dollar whenever the data shows economic improvement. That’s counter-intuitive to what you would think… But the thinking here is that: If the US economy is healing, the rest of the global economies will rebound much faster, and investors will shift funds from low yielding US assets to higher yielding foreign assets.
So… Now you know!
The Japanese stock market (Nikkei) posted a gain overnight, moving the index to a four-week high… The only reason I tell you this, is that it probably will lead to US stock strength, which has also been a nail in the dollar’s coffin the past seven months.
So, I guess what I’m getting at here is that we could very well see further weakness in the dollar this week… But, you can’t count on these trading themes, for just about the time you do, they reverse themselves! Or at least that’s how it always seems for me when I buy into an asset class!
Ty showed me a website last week called “thenothingstore.com” they had a note that I found to be simply genius! They make fun of the “unmighty dollar” and give you dollar bills to print (Funny money!) And then tell you to: “Click on a denomination above, print the bills, cut them out, and stuff in an envelope. Send to your congressman or senator marked as a CAMPAIGN CONTRIBUTION. They’ll get the message!”
Now that would be funny!
Then there was this… It is rumored that the Russian government is going to sell some of their gold holdings to help reduce their budget deficit… It’s thought that the Russians would have to sell about 50 tons of gold to fill their budget gap… The price of gold is not reflecting this story yet, so maybe it’s just a rumor… But, I would have to think the Russians would not think twice about doing something like this… Once again, we’ll have to call on the Chinese to soak up the gold that will hit the streets, or else we could see slippage in the gold price.
That reminds me of a conversation with our Mortgage guru, Stacy Blair, while in North Georgia two weeks ago… Stacy asked me why the US didn’t just sell their gold holdings to fill their budget gap… I told him that while that sounded good, what do we do next year? And the year after that? I mean the government has said that we need to prepare for $9 trillion in budget deficits for the next nine years… And then there are the conspiracy people that question just how much gold the US has? I mean Ft. Knox hasn’t been audited in a month of leap years!
To recap… The euro had pushed higher into the 1.50 handle until German consumer confidence caused a bit of slippage. The Swiss franc hit parity to the dollar last Friday, but has seen some profit taking since, and the Canadian dollar / loonie is softer on a warning from the central bank about the strength of the currency. US data this week could show some healing in the economy, which would not be good for the dollar.