Chinese Exports Slow Down

Well… Those lofty figures from yesterday for the currencies and metals held for most of the day and night, until… China printed their latest export report, which showed exports slowing… Exports rose the least in seven months… Now… Seven months ago, 14 months ago, and so on, economists and analysts have forecast a collapse of the Chinese economy and they have been wrong… I’m sure we’ll hear more from the Chicken Littles on this… I’ll tell you one thing that’s sure to happen… (That is, I’m pretty sure, but there’s no guarantee!) If exports continue to slow, the Chinese government won’t be so quick to allow a faster appreciation of the renminbi (CNY)… They’ll have no incentive to do so!

Sure, the lawmakers here won’t like that, because by the time that happens, they will have learned that their bill to punish Chinese exports was illegal in the World Trade Organization (WTO)… And then, the only thing left for the lawmakers will be to return to China, and beg them to allow a faster appreciation of the renminbi.

For those of you new to class… The US lawmakers truly believe that all that ails the US economy has been the weak Chinese renminbi… Now, I’ll give you that it has been central in the global imbalances, but… Stop for a minute there… If US consumers weren’t buying Chinese goods, hand over fist, the currency’s value would be of no concern… The lawmakers also believe that a weaker dollar, compared to the renminbi would allow US exports to be more competitive… Well, technically that would be true, for if the US goods are cheaper, they are more competitive… But, will they actually be a “player”? I don’t think so… You see, it’s a wages thing… US wages are high, and therefore the goods they make are expensive compared to the wages of the emerging market countries of China, Indonesia, Malaysia, India, Turkey, and so on…

Let me see a show of hands that recall us playing this blame game on a country’s currency before… Good! You all remember the ‘80s… You know, that period of time with digital drums and Cyndi Lauper… Well, who was the villain then? It was Japan… We blamed Japan for all our export problems, when it wasn’t a currency thing, and none of this is a currency thing… It’s a wages thing… Wanna make your exports more competitive in the emerging market countries? Make the goods less expensive, and then along with a cheaper currency, you might just have something!

Meanwhile, back at the ranch… The euro (EUR) has seen about a 3/4-cent drop since the Chinese exports report printed… I think traders, investors, and others seen in the afterhours, believe once again that China will slow to a pace that brings global growth to a snail’s pace.

The Aussie dollar (AUD) has surprisingly not reacted to the Chinese exports report… The Aussie dollar has actually remained flat with a bias to rise. The Aussie dollar got a lift overnight when Australia’s statistics bureau reported that the unemployment rate fell to 5.2% in September from the 5.3% in August. So… Once again, here’s a piece of data that is counterintuitive to the calls for rate cuts in Australia…

German and Eurozone inflation data just printed… And Eurozone inflation remains well above the ceiling target of 2%, with inflation printing for September year-on-year at 2.9%… There are rumors that incoming European Central Bank (ECB) President, Mario Draghi, is going to cut rates… Hmmm… Talk about a shot to the heart of all the credibility that past ECB Presidents (Duisenberg, and Trichet) built! The Maastricht Treaty has a mandate that the ECB has to provide price stability, which is central bank parlance for “don’t allow inflation”… Well… To cut rates now, while inflation is higher than the ECB’s ceiling target rate, would be devastating to the ECB’s credibility, and… Those of us who were around and following the euro in 2000, will recall how devastating it was to the euro, to not have a credible central bank… (The ECB was too new to have earned credibility.)

Oh… And remember what I told you about the Slovakia vote to change the EFSF? I told you they would initially vote no, but within a couple days ratify the measure… And guess what? That’s exactly what happened! Not that I questioned myself! HA! But, yes, Slovakia’s major political parties agreed to ratify the measure…

I don’t think the ECB should stop with this increase of the EFSF… They need to build that up to a size that would scare any speculator…

With the weakness of the euro overnight (down 3/4-cent), the likes of Norway and Sweden are not faring well either. But what I wanted to talk about here is the fact that while Eurozone banks are going to get recapitalized… Norwegian banks will probably continue doing business without help from their government. I don’t know if long time readers will remember me writing about the Norwegian Banks, back in 2008, when the financial meltdown hit the US. But, back then, I told you all how Norway and Sweden faced a banking crisis a decade earlier, and addressed it then, and since, had received stellar marks for soundness… And Norway’s Finance Minister, Johnsen, said, “The Norwegian banking sector is stronger today than it was in 2008 and in that respect they also have a first line of defense.”

So… You all know that I’ve long been a fan of the fiscal soundness of Norway… And one of these days, Alice… Traders and investors will see them in a different light than the euro… But until that day, the krone (NOK) gets painted with the same brush as the euro, although most of the paint was left on the euro…

Sweden is also sound… But on a smaller scale than Norway…

Today, we’ll see the color of the latest trade deficit… And we’ll get the usual fare of Weekly Initial Jobless Claims today. The monthly budget deficit is also due to print… But look for that to be delayed and an attempt to fly it under the radar, because it is forecast to print at a $64 billion deficit for September… Of course that’s better than August’s $134 billion… In fact, in the 8 months of 2011 that have already printed, the budget deficit has totaled $ 863 billion… That’s an average of $108 billion each month, which, annualized, would give us a total of nearly $1.3 trillion… That’s another $1.3 trillion that will be added to our national debt… And still, we keep finding ways to spend money we don’t have!

Gold is down $8 this morning, so not much movement in the shiny metal at this point. And gold and silver are the subject of the “Then there was this” section today… I stole this from Ed Steer’s letter on metals, and he stole if from Ted Butler (no relation that I know of)… Ted Butler has done extensive research on the price manipulators in gold and silver… And here’s his latest on that subject…

Then there was this… With Ted Butler, Silver Guru…

Just like the sharp reduction in the commercial short position in COMEX silver and gold futures is good, the sharp reduction in the short positions in SLV and GLD is also bullish going forward. But the manner in which all these reductions came about is manipulative and bad. It does need to be said again that without the buildup of shorted shares in SLV and GLD, the price of each would have been much higher this year…to at least $75 in silver, if the SLV shorts had to have deposited metal instead of being allowed to sell short. That’s what makes this share shorting fraudulent and manipulative. There is no doubt in my mind that the big silver and gold shorts on the COMEX are also the big shorts in SLV and GLD. All these short positions didn’t get simultaneously reduced by coincidence; this was as deliberate and manipulative as it gets. The price of gold and silver were forced lower for the primary purpose of allowing the big shorts on the COMEX and in the shares to buy back their shorts. You would think that the CFTC and the SEC would and could get together and ponder how the big manipulative sell-offs in the metals just happened to result in a dramatic windfall for all the silver and gold shorts at the same time. If the regulators ever do try to connect the dots, I’d be happy to provide the crayons and the ‘paint-by-number’ coloring books…and walk them through it very, very slowly. That’s a promise.

I loved that last part of the paragraph… I get that Ted Butler is as exasperated with this whole situation as Chuck Butler is!

To recap… The currencies and metals enjoyed a day in the sun yesterday, but were brought back to the dark room by a weaker Chinese export report. Chinese exports were weaker, but still up… So, Chuck isn’t sure why everyone is turning into Chicken Little here. But, if Chinese exports do continue to slow, you can bet your sweet bippie that Chinese officials will turn the spigot off for appreciation of the renminbi… Eurozone inflation continues to be much higher than the 2% ceiling target. And Australian Unemployment dropped in September.

About Chuck Butler 105 Articles

Affiliation: EverBank

Chuck Butler is President of EverBank® World Markets and the author of the popular Daily Pfennig newsletter.

With a career in investment services and currencies extending over 35 years, Mr. Butler oversees all aspects of customer service and the trading desk for EverBank World Markets. A respected analyst of the currency market, Mr. Butler has frequently made appearances or been quoted by the national media. These include the Wall Street Journal, US News, World Report, MarketWatch, USAToday, CNNfn, Bloomberg TV, CNBC, and the Chicago Tribune.

Mr. Butler was previously the Chief International Bond Trader and Director of Risk Management for Mark Twain Bank, and has held significant positions in the investment industry since 1973.

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