Chinese Imports Remain Robust

Good day. Another well-pitched game, and a couple more home runs for my beloved Cardinals last night. I must say, it’s been a very good start to the season, but we all know it’s a marathon season, and getting too lathered up early can lead to disappointment later, so I’ll just say I’m pleased they have started so well.

The same can be said for the currencies and metals. A nice performance yesterday by both, but no use getting all lathered up about the moves, because we all know just how volatile things have been for over two years now. But it doesn’t stop us from smiling when we see gold up $20 on the day!

The euro (EUR) is stronger today, and began its move higher — along with gold — yesterday after some comments by a Fed head. You’ll get a kick out of these comments, so here you go.

Dallas Fed Head Richard Fisher, you know that guy that wants more inflation in our economy and is reported to own a ton of gold (that’s all I’ll say about that finding), said in a speech yesterday that: “I hear real concern from my business contacts that the Fed’s expanded balance sheet is a little bit of ember in what could become an inflationary fire.”

Hmmm… seems as if he’s come around to the Chuck Butler/Pfennig way of thinking.

The euro has added to the gains it made yesterday after Fisher’s comments this morning. The fuel the euro is receiving for more burn on the dollar comes from the results, so far that is, from the six different eurozone countries auctioning debt today. I find the euro’s move higher yesterday — in the face of the news that Spain’s borrowing costs rose to 6% — was very interesting and impressive!

I think what we’re going to see going forward in the eurozone with regard to debt auctions is that when yields begin to nudge higher, the European Central Bank (ECB) will step in to correct the move, a la the Federal Reserve. I told you last month that the ECB was becoming the Fed, and they will in fact become the Fed of Europe.

And I think that the ECB correcting the rise in yields by buying the debt is one of the reasons that Spanish debt yields have fallen this morning.

That’s nothing to be proud of. About 10 years ago, I created a basket CD called the Prudent Central Bank CD. Its components were currencies of what I considered to be prudent central banks, which at that time were the ECB, the Bank of England (BOE), the Reserve Bank of Australia (RBA) and the Reserve Bank of New Zealand (RBNZ). These days, we could issue that same CD and call it the “NOT So Prudent Central Bank CD”!

Of those four, only the RBA continues to at least have some semblance of being prudent. The other three have gone to you-know-where in a handbasket when it comes to being prudent!

OK, enough of that! I saw yesterday that the IMF had issued a warning to China regarding China’s current account surplus. The IMF apparently is set to reduce its long-term forecast for the account surplus, which is the broadest measure of a nation’s trade.

Well, two thoughts come to mind here. Wasn’t a reduction of the trade surplus bound to happen with appreciation of the renminbi? (CNY) So I see the intellectuals over at the IMF have really done their homework here — NOT! And two, I think should the IMF actually make this call, that the Chinese will have a field day with it. How so, Chuck?

Well, think about this for a minute. If the IMF reduces their forecast for China’s current account surplus, the Chinese can take that message and throw it at the U.S. officials that continue to blame China for all the U.S.’ problems. The Chinese could say, “See, we told you that the renminbi isn’t undervalued.”

I don’t think it would stop the appreciation that’s a very slow grind in the renminbi. I just think that the Chinese would love to have that card in their back pocket to pull out the next time U.S. officials go on a boondoggle to China at the taxpayers’ expense in an attempt to get the Chinese to move faster with the appreciation of the renminbi. Then they’d pull it out for all to see.

While I’m in Asia, the Japanese yen (JPY) continues to defy gravity and is once more rallying, this time moving below the 81 figure. OK, I give up here! The yen has been a thorn in my side for some time. Let me explain. Years ago, when the yen was 110, I said that it looked like it would begin to rally and trade below 100. Sure it did just that, but it took two years to move. I can’t tell you how many chuckles people had with me for those two years that yen didn’t move. So then I said I thought yen would move below 90, and once again, it took what seemed to be a few years to do that. Again with the pointing and laughing at Chuck over this thought on yen.

So last week, I said that the appeal for yen to be a so-called safe haven had waned, and that the repatriation of yen in March that happens every year, had ended, thus suggesting that yen strength would be a thing of the past. And here we are this week with yen back on the rally tracks! So given my history with yen, it might take two years for it to weaken.

Hey! It’s better to be right eventually than never at all!

The euro/franc cross is once again nearing the 1.20 “floor” the Swiss National Bank (SNB) put on the cross back in September 2011. The cross currently trades at 1.2012. Very close, eh?

I received a few emails yesterday in response to my rant on the U.S. debt and the unfunded liabilities with all the baby boomers lining up to retire. One email quoted my friend John Mauldin, who believes that most baby boomers that have reached 65 will continue to work, thus lessening the draw on the unfunded liabilities. Hmmm. That may be, but the number that will retire is a greater number, in my opinion. Not all baby boomers have frittered away their savings and retirement plans. I sure haven’t!

I was just discussing this with my beautiful bride last night — going over all the accounts, something everyone should do from time to time, I might add.

On a sidebar — and this plays well with my rant on government deficit spending — you know the $656 billion Mega Millions lottery jackpot that was just won by three different people/groups? If the government had held the only winning lottery ticket and the whole amount went to them, they would have it spent in just 80 minutes!

And right on que, the U.S. government’s monthly budget deficit will print today for March. You might recall how I about lost it last month when it printed a $188 billion deficit. In March, the forecast is for the deficit to come in at $196 billion! Don’t do the math on that — you won’t want to see what those numbers annualize to. UGH!

This past weekend, China reported an increase in inflation. Yesterday, they also reported that their imports continue to show robustness! So that tells me that the Chinese economy is still going strong. Not as strong, but still strong.

And the Australian dollar (AUD) likes to see that!

Then I saw on the TV yesterday a story on how the two mortgage giants, which happen to be owned by the government, are looking to forgive some debt to homeowners that are underwater. OK, who here doesn’t see this as a conflict of interest? Is this not a campaign year? Oh, well. Maybe it’s just my conspiracy blood acting up again.

But I did see this, and it revived my faith in my fellow Americans:

“The U.S. Federal Housing Finance Agency examined principal reduction for underwater homeowners and found that the move might save money. However, Acting Director Edward DeMarco said more study is necessary, as he remains cool to the idea. ‘Most Americans that are underwater on their mortgage realize they’ve signed a contract, they’ve got an obligation to make that payment and, in fact, they are,’ DeMarco said.”

To recap, the currencies and metals performed nicely yesterday after Fed head Fisher had some comments about inflation here in the U.S. The move in currencies was led by the euro, which rallied in the face of rising Spanish yields. But the early reports this morning from six different countries auctioning debt in the eurozone are good, so yields have fallen, and it’s back to rally time for the euro. Gold gained $20 yesterday. And Chuck gives up on Japanese yen!

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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