Data Dependency...

Good day… Well, everything turned around on a dime yesterday when the Gov. printed a CPI (inflation) report that showed a .6% gain for April, which was greater than expected… I warned everyone yesterday, that the April report would most likely yield an upside due to the price of oil during the month, and that the report would lead to dollar strength… This brought to mind the comment that Big Ben Bernanke left us with at the last FOMC, and that is… That further rate hikes will be determined by the data.

So… Keeping that in mind, the rate hike campers came out of the wall, screaming and kicking sand in the currencies, stocks, and commodities respective faces… For… If inflation is going to show that kind of a gain in one month, the Fed most certainly will react with another if not two rate hikes.

That thought erased any gains the currencies had made at that point, and the trap door floor was sprung on them. Euros fell 1.5-cents, and yen almost 2 whole figures! OUCH! But I don’t believe this one day move will remove the underlying negative momentum against the dollar… And that can be seen in the overnight recovery, of sorts, for the currencies… Euros have gained back 1/3rd cent, and yen is heading back to 110.

Lots of show attendees walking around with sad looks on their faces yesterday, given the 215 point loss of the Dow… So they would head over to our booth, and we wouldn’t be able to console them either! However, now… These are definitely better currency levels to buy that what we saw at the beginning of the week!

Canadian loonies are seeing some selling pressure after their April CPI report fell to 1.6%… Now, technically speaking, this should be “good news” for the loonie… However, with the markets so focused on rate hikes… This report could very well remove the thought of a Bank of Canada rate hike… Again, though… I’m going to take the opposite side of that thought, and say the Bank of Canada WILL continue with their rate hike cycle and hike rates next week when they meet.

We have a ton of “speakers” today… Who knows what this will bring us, but here the lineup… We begin with St. Louis Fed Head Poole, who speaks on Yield-Curve Inversion, Fed Chairman Bernanke speaking regarding real estate, ex-chairman Greenspan making remarks at a Bond Market Association Event, and the Treasury’s Snow testifying before the Senate Banking Committee on the latest Currency Report.

Well… Being on Pacific Time, I’m able to see some of the data that comes through before I hit the “send” button. For instance, the Weekly Jobless Claims just printed, and Jobless Claims jumped higher to 367,000 last week from an upwardly revised rise of 325,000 in the previous week. The experts had forecast the Jobless Claims to come in at 320,000, so they were completely off base. The thing to think about here, is that this data has been trending the wrong way, after falling to a weekly number of around 300k, it has been trending up, and that’s not good…

So… If Big Ben going to look at this data too? He had better!

Gold sure took the inflation news on the chin… I’m surprised by that… One would think that if inflation is moving higher, that the hedge against inflation would rally, that inflation being Gold… However, the nice overnight rally that took place in Gold on Tuesday night, was all lost once the U.S. inflation report printed yesterday. This could be something that keeps Gold range bound for a little while, as this report and sell off shakes off some “old longs”… But, it shouldn’t last too long!

I see where U.S. Senators, Schumer and Graham are back at the whining table… Yes, these two that have been at the forefront of the complaints against China and their currency policy, and have actually introduced legislation to place tariffs on Chinese exports to the U.S., (but then pulled it back), are complaining to U.S. Treasury Snow again… Apparently, the smokey back room deal that the U.S. made with China that kept the U.s. from naming China a “Currency Manipulator” isn’t working out… Apparently, China isn’t keeping up with their end of the deal! In fact, last night, Chinese renminbi actually weakened VS the dollar!

These two lawmakers have really paraded around, and even visited China, only to have the Chinese make them look foolish… This whole scenario has bad vibes all around it… I was hoping that these two would go away for a while… Apparently not! UGH! And on that note… I’m going to head to the Big Finish…

Currencies today: A$ .7650, kiwi .6250, C$ .8980, euro 1.2785, sterling 1.8870, Swiss .8245, ISK 71.50, rand 6.4275, krone 6.1370, forint 207.70, zloty 3.10, koruna 22.19, yen 111, baht 38.15, sing 1.5790, INR 45.45, China 8.01, pesos 11.19, Silver 13.09, and Gold… $687.80

That’s it for today… I have my second presentation in about an hour, so I’ve got to get to looking that one over… Sure hope my beautiful bride is feeling better today, she sure had a rough go of it yesterday, and I’m felling a bit useless away in Las Vegas! UGH! I was quite busy yesterday with writing things… Chris is feeling better… Have a great Thursday!

Chuck Butler
May 18, 2006