Good day. In keeping with the tradition I set many years ago on Tax Day:
“If you drive a car, I’ll tax the street,
If you try to sit, I’ll tax your seat.
If you get too cold, I’ll tax the heat,
If you take a walk, I’ll tax your feet…
Cause I’m the taxman, yeah, I’m the taxman…”
Yes, we did receive a couple extra days this year to file our taxes, given that April 15 was a Sunday. But the day is here. I personally totally dislike taxes. But they are what they are, I guess.
A very nice rebound in the currencies yesterday (the metals slogged along), which was first fueled by the news that China had widened their trading band for the renminbi (CNY), and second by the news that U.S. retail sales, while not meeting the previous month’s downward revised increase of 1%, did surprise to the upside, reaching out to 0.8%.
Some really smart people decided to look at retail sales differently, and put a lasso around what they called “control” retail sales, which includes sales of gasoline, motor vehicles and building materials. And then they see that retail sales without these big-ticket items still rose 0.5% in March.
Of course, we won’t know what the consumer credit numbers are for March until May (ridiculous, I agree!). I like to look at those data in conjunction with retail sales, to see if we as a country of consumers continue to spend more than we have, just like our government.
But the killer to me on all this activity yesterday was that apparently the risk assets are still all tied together: Stocks, currencies and metals… all my wishin’ and hopin’ and prayin’ that these would go back to previous 2008 trading norms have been put on hold.
Yesterday, we also saw the TIC flows jump much higher ($107.7 billion) than forecast ($30 billion). So what gives there? First of all, for all you newbies to class, the TIC flows are the net of securities (read Treasuries) purchased by foreigners. This number needs to remain strong, for this is how we finance our debts and deficits. Here’s what I could find…
Recall that a couple of months ago, I told you that China was slowly backing away from the Treasury auction window, which was scary? For February, they came back. A reporter from CNNMoney called and asked me my opinion on this news. I told him that “There is a give-and-take. The U.S. wants the dollar to be weaker, but not for it to fall off a cliff. It’s the same for China. They will continue to show up and participate in bond auctions occasionally to keep everybody happy.”
So the ding-dongs that continue to shout from the rooftops that the foreigners don’t care about what kind of deficits we add to our debt — and that’s proven by the fact that they keep showing up at the auction window — are going to be proven so wrong, they’ll almost be right.
Back to the currencies: The euro was the big dog once again, leading all the little dogs off the porch to chase the dollar down the street. The euro (EUR) nearly had a 2-cent gain on the day, given where it fell briefly the previous night.
This morning in the eurozone, consumer inflation was revised upward to 2.7% in March. Remember that the European Central Bank (ECB) has a ceiling target of 2% for consumer inflation. But also remember that ECB President Mario Draghi cut interest rates in the face of inflation raging much higher than the ceiling target. So apparently, this ceiling target is merely a “suggestion,” not a rule.
In the eurozone this morning, we saw the color of the latest index of German investor confidence as measured by the think tank folks at ZEW increase to 23.4 from 22.3 in March. And there was also good news from Spain, where the pain has been mainly on the plain. Spain was able to auction more than their target amount of 3 billion euros of bills, with the total hitting 3.18 billion euros. And while the yield on the 12-month bills was higher than it was last month, it didn’t get completely out of line.
The important thing to think about here is that when you need to attract buyers to your debt, even in rough times like Spain has seen lately, you need to raise the yield. Curb appeal, you might call it. But it works. It’s something we’ll have to deal with here in the U.S. soon enough.
Speaking of what we have to deal with here in the U.S., Treasury yields have fallen again, and you have to wonder who would want to own U.S. debt at less than 2%? And with yields falling again (recall that just last month they had risen to 2.38%), you look around for other investments that might pay more than 2% (much less for the investors once the broker takes his pound of flesh from the trade).
I read something last night that was interesting in that the researcher tied the movements of Treasuries and Japanese yen (JPY) together. As Treasury 10-year Treasury yields fall, yen gains versus the dollar, and vice versa. Pretty interesting.
Remember yesterday when I mentioned that at the Reserve Bank of New Zealand (RBNZ), Gov. Alan Bollard, was never a fan of a strong kiwi? (NZD) Bollard is retiring this year, so I immediately think that maybe there’s another Don Brash for New Zealand (Brash was RBNZ governor in the ’90s). But then I see where the prime minister has picked up the slack for Bollard. Prime Minister John Key stated last night that the New Zealand dollar was overvalued and that the government “is considering what we can do to resist a rising exchange rate.”
Jeez, Louise, I dislike these guys! Do they not see that a strong kiwi is what is helping to keep inflation below their 2% target rate (currently 1.8%)?
Remember the RBNZ is autonomous from the government. So the PM can spout off all he wants, but the RBNZ sets the monetary policy and has strict guidelines it has to follow should it want to intervene, ala Japan, Brazil and all the others that intervened. Here are the criteria:
- The exchange rate must be exceptionally high or low.
- The exchange rate must be unjustified by economic fundamentals.
- Intervention must be consistent with the Policy Targets Agreement.
- Conditions in markets must be opportune and allow intervention a reasonable chance of success.
So given all that, I don’t see the RBNZ joining the ranks of Japan, et al. However, we can expect to continue to hear the likes of PM Key and RBNZ Gov. Bollard talking the currency lower.
The Bank of Canada meets today, and even though Bank of Canada (BOC) Gov. Mark Carney last talked about how rates would rise sooner than later, it’s not sooner yet. So the markets will be looking for signs in the press conference that follow the rate announcement of any hawkish statements. If the conference is deemed to be just “less dovish,” I don’t think the Canadian dollar/loonie (CAD) will be able to hold onto the gains it made the last two days.
Sweden’s central bank, the Riksbank, meets tomorrow on rates. With Sweden’s latest downgrade for economic growth, I can’t see the Riksbank hiking rates, nor do I see them doing a knee-jerk rate cut. The Swedish krona (SEK) has suffered through the gyrations of most of the currencies these days. I recently told a crowd of people that one day, sons and daughters, the markets will realize that countries like Norway and Sweden are NOT the euro and have completely different fundamentals.
Next week is a big day for the Aussie dollar (AUD), and Aussie rates. The Reserve Bank of Australia has said that a rate cut in May is dependent on the first-quarter CPI (consumer inflation) report, which prints on April 24. I know I’m going out on a big fat limb here, but I’ve said before that I don’t agree with the markets’ call that interest rates in Australia need to be cut. And I continue to believe that the markets have put too much into a rate cut by the RBA in May.
Therefore, if I’m correct, all those trades/shorts put on to take advantage of a weaker A$ from the May rate cut might have to be reversed, and that could be a big lift to the A$. But remember, that’s just my opinion on these things. I could be wrong!
The U.S. data cupboard will yield two of my favorite pieces of data this morning, as March reports for capacity utilization and industrial production get printed. Some housing reports will also print, but those have been so skewered lately toward multifamily units that it’s difficult to decipher if housing is rebounding or not.
Then from The Wall Street Journal this morning:
“The Federal Reserve has pledged to be more transparent, but it is only willing to go so far.
“The central bank normally releases comprehensive transcripts of its policymaking meetings five years after the sessions. But when news organizations requested transcripts of the meetings around the 2008 financial crisis, the Fed released redacted documents that revealed only pleasantries from the sessions and no substantive discussions.”
The transcripts during the 2008 meetings were so heavily edited that discussions of all substantive issues were withheld. Now, doesn’t that just tick you off? It does me! Especially on a day that I filed my taxes! Someone should file a request for the information unedited and fight until they get it! But not me… I can’t do that in my kinder, gentler Chuck persona.
To recap: The euro led a very nice currency rally yesterday, with all the risk assets once again being thrown together for trading. The TIC flows were huge in favor of the U.S. debt, which is really questionable, eh? U.S. retail sales were stronger than expected. N.Z. PM Key disses his currency. And what’s with the Fed editing the tapes of their 2008 discussions?