A Big Data Week!

Good day… And a Marvelous Monday to you! Two of three from our second most heated rival, the Astros, makes for a good weekend at the Butler House! Should have been a sweep, but I won’t get greedy! The currencies in the overnight market have started to show some healing from last week’s meltdown… So, let’s get to it!

First off, front and center this morning, the euro (EUR) is leading the pack (vroom, vroom) this morning after rallying all night in Japan, and now Europe. I was talking to a trader from a BIG BROKERAGE HOUSE the other day, and I mentioned that I had seen plenty of stories in the past few days that made it sound as if the markets had changed their mind regarding a Fed rate cut this week. The trader mentioned that the percent of those polled thinking there would be a cut had fallen during the week, but was still around 75%.

I really thought at that time that the fall from the high 90% thinking there would be a rate cut to 75%, probably had a lot to do with the dollar rally last week. I still think that’s the case. One of these days we’ll see Big Ben change his tune on rate cuts to appease the markets, and affix his eyes on the inflation balloon that is now hovering over us. I even heard some dolt on our local radio station yesterday tell the audience that “inflation isn’t a problem”. HAHAHAHAHAHA! You should have heard me yell at the radio!

The dollar has two items hanging over its head like the Sword of Damocles this week… First, the Fed meeting on Wednesday… And Second, the Jobs Jamboree on Friday. We’ll be into May by then and the dollar bulls might be yelling “May Day” once that Jobs report prints on Friday, given the forecast right now stands at a negative -78K.

So… Who’s mast are you going to pin your colors to this week… The dollar’s…or the euro’s?

OK… Long time readers know how I continue to believe that the balance of payments is going to continue to weigh on the dollar. I tried to make this point on CNBC but they would hear nothing of it… So, instead I turned to my Pfennig readers, of which, there were probably more reading what I wanted to say than people watching CNBC! HA! (I jest, I know better!)

Well… Wanna see something that really plays well with my thought that the financing of the deficit is going to be the biggest problem for the dollar? Japan owns more Treasuries than any other nation. After raising their holdings by $9.2 billion to $620.6 billion between March and July 2007, Japanese investors trimmed that stake by $34 billion through February, the U.S. Treasury said April 15. And why not? The Japanese just posted a 7% loss on their Treasury holding in the last quarter!

So… The “pain meter” for the dollar just went up a few notches… As the story on the Bloomie said… “Add another ailment to the U.S. misery index of soaring gasoline and wheat costs and falling home values: a Federal Deficit that’s is burgeoning as foreign investors led by the Japanese recoil from the slumping dollar.” Couldn’t have said it better myself!

This is scary stuff folks… I don’t mean to cry wolf here… But it’s something to keep an eye on. This is a scenario that I’ve explained over and over again the past few years… That it was something back in the deep dark closet of scary things for the dollar. I don’t think that it has been dragged out of the deep dark closet just yet, but it has moved closer to the closet door.

On Friday, we saw a little bit of healing in the currencies after the U. of Michigan Consumer Confidence Index fell to it’s lowest level since 1982 in April. This was alarming, given the fact that the “experts” had thought the report would not show additional weakness from the previous reading. The 53.3 index level is firmly in the range that is historically associated with a recession.

I had two radio/podcast interviews on Friday… Since I have the face for radio, the PR people are lining the interviews up for me… I like these, because the interviewers let me talk… Too bad they have just regional reach.

OK… Besides the Fed meeting – which by the way is a two-dayer – what these guys do for two days, besides playing Battleship or Risk is beyond me! OK, back to what I was talking about, besides the Fed meeting, and the Jobs Jamboree, this week is chock-full-o-data, that will probably really weigh heavily on the dollar. Here’s the roster o-data…

Tomorrow we get to see the color of the latest GDP report for the first quarter (should be an anemic 0.4% growth, which without Government spending (we are fighting a war) would most likely be very negative. We’ll also see personal consumption, which the Fed looks at for signs of inflation. (I think they need another barometer… It’s called the Pfennig!) We’ll see the Chicago Purchasing Manager Index (manufacturing), and then two of my faves, personal income and spending.

On May Day, we’ll see the latest ISM Manufacturing Index, which is expected to remain below the contraction line of 50. There are other second tier reports sprinkled throughout the week, so it’s not going to be an easy week for the dollar, as it was last week!

With the dollar weakness overnight, gold has bounced back over $5. Oil has pushed back to within spittin’ distance of $119. Could this be the beginning of the next leg up for the commodities against the dollar? Don’t know the answer to that question… But figured it was worth everyone taking a moment to think about it.

One currency that’s not following the euro higher this morning is Japanese yen (JPY)… The Bank of Japan (BOJ) is expected to lower its growth projection for the current year when it releases its twice yearly outlook on the economy this Wednesday. In addition, the BOJ will most likely leave rates unchanged at the meeting on Wednesday. I think that yen gets more play in the carry trade than it does on its own data. And so it goes with yen… I still fully expect it to recover this lost ground and get back to 100 and beyond, but it will require a risk event to play out, that unwinds carry trades again.

In New Zealand, could the trade deficit finally be getting some relief? The February report showed a trade surplus for the month, at NZ$ 258 million. The March report will print tonight and is expected to be an even larger surplus number! WOW! New Zealand turning the tables on their HUGE deficit? Well… That would be grand! But, they’ve got a hard row to hoe with getting their trade deficit straightened out. But these monthly surplus reports are certainly a step in the right direction!

And how about that Aussie dollar (AUD)? It is knock, knock, knocking on Heaven’s door… No wait, it’s knocking of the door of 94-cents again. I read a report the other day that ties China’s demand for coal with Australia’s ability to export it to them. China depends on coal for 70% of its energy source, and their demand just continues to grow. Australia, which is the biggest exporter of coal in the world, is sitting pretty. I’ve said this over and over again the past five years, and that is… China’s growth, and its need for the commodities that Australia is rich with, will keep both commodity prices and the Aussie dollar underpinned. I still think that Aussie will trade to parity this year, but that’s just me folks… I could be wrong!

The European Central Bank (ECB) is talking like hawks again, which can’t be good for the dollar! ECB member Liebscher is talking this morning, and focusing on inflation. He’s saying that “inflation will stay higher longer than expected” and that “only the IMF sees room for the ECB to lower rates” and that “the ECB can’t be complacent on inflation”.

WOW! Wouldn’t it be nice to see our own Big Ben talk tough about inflation like that, instead of hiding behind the stupid CPI report and claiming that we have no real risks with inflation?

Anyway… That’s all good stuff for the euro…

Pound sterling (GBP) continues to hang on. I’m very surprised by the performance of the pound… But then, even with cutting rates and being in a rate cut cycle, interest rates are still at a huge positive differential to most of the world. Me? I’m just pointing out the surprising performance… I don’t think we’ll see pound sterling getting’ jiggy with it any time soon.

Carry trades are hot and heavy again. That means yen and francs (CHF) are on the hot seat and getting sold short again. UGH! Just when we thought that was all over! It certainly looks like these are buying opportunities again, eh? Could be… Maybe… Who knows for sure? All I can say is that they are certainly cheaper levels to buy than last week!

Currencies today 4/28/08: A$ .9395, kiwi .7875, C$ .9880, euro 1.5660, sterling 1.9885, Swiss .9675, ISK 73.25, rand 7.5350, krone 5.0970, SEK 5.9775, forint 161.30, zloty 2.19, koruna 16.08, yen 104.40, baht 31.65, sing 1.3620, HKD 7.7890, INR 40.15, China 7.00, pesos 10.44, BRL 1.6660, dollar index 72.55, Oil $119, Silver $16.94, and Gold… $891.65

That’s it for today… I’m running late today. Mary Owens is here, Mike is here, Kristin just walked in. OH MY! What’s going on here? Guess I’ll have to start even earlier tomorrow! Big data week, so strap yourself in and keep your arms and legs inside the vehicle at all times! My little buddy Alex’s baseball game was a washout on Friday night. They got to play one inning before the deluge came. More rain is expected today… April Showers is bang on this year! Well… Since everyone’s arriving, I guess I had better hit the “send button”. I hope you have a Marvelous Monday and Wonderful Week!

Chuck Butler
April 28, 2008