Well… November hasn’t been kind to the currencies and precious metals, that’s for sure… But then, it was about time for the markets and media to shift their focus in November, wasn’t it? Yes, it was… The thing I kept worrying about, happened, and here we are today with the euro (EUR) barely hanging by a thread to the 1.30 handle once again… Shoot Rudy, haven’t we seen this before, like last winter? Then it was the knee-jerk reaction to the GIIPS (Greece, Italy, Ireland, Portugal, Spain) that caused a huge sell-off of the euro from 1.45 to 1.18… But then the markets and media grew tired of this story, and their attention span ended for the GIIPS, and was shifted back to the problems of the US.
In June, the focus shifted back to the US and we saw a huge rally in the currencies and precious metals, with gold reaching $1,409.55 and the Swiss franc (CHF), Aussie dollar (AUD), and Canadian dollar/loonie (CAD), all reaching parity to the US dollar…
But now the focus has shifted back to the GIIPS, even in the face of an aid package for Ireland, now the keyword in the markets is “contagion”… As in what is going to be the contagion risk for the European periphery countries like Spain and Portugal… So… Once again, it’s time to batten down the hatches and ride this storm out… Riding the storm out, waiting for the fall out… And those of us who in our heart of hearts know that the end game for the dollar is to be much weaker to allow the government to pay the interest on the debt they’ve issued, will use this current weakness to buy more insurance against a dollar devaluation, at much cheaper levels… As I told a group of people yesterday… When the currency is weaker, you get to buy more of it! So, it can be a good thing!
As the day went on yesterday, the weakness of the currencies was confined to the euro and the euro alternatives, like Norway and Switzerland (Sweden, as I told you yesterday is cooking with gas these days!). The commodity currencies (minus Norway) were gaining ground versus the dollar along with gold and silver, which had turned their negative performance on the day to positive by the afternoon.
The overnight markets brought more pain to the euro, and the other euro alternative currencies, this time including Sweden, are getting taken to the woodshed, while the commodity currencies of Aussie, Canada, New Zealand, Brazil, and South Africa, are weaker, but by just a small amount.
I told you yesterday that the euro was nearing its 200-day moving average, and if it falls through that average it could be an indicator that more weakness is coming… And that’s what’s happened overnight. So… I checked with my tech charts friend, and he tells me that a move through the 200-day moving average that is now confirmed, could mean the euro would fall through 1.30, all the way to 1.25… But these are charts friends… Do not bet your house on them coming to fruition… But, the historic data on moving through 200-day moving averages is pretty good…
The “better than the average bear” – economic data for Germany – continues to print… This morning, it was German unemployment data that showed a slight fall in jobs of 9,000, but the overall unemployment fell for a 17th month… The total unemployed moved to 3.14 million, the lowest level of unemployment in Germany since 1992!
So… It’s chaos all around Germany, but in the core country, the largest economy of the Eurozone, things are moving in the right direction… The export driven economy will get a further boost by the weaker euro, folks… So, a weaker euro is not all bad for Germany! I’m sure the Germans would prefer to see their currency remain around this 1.30 level, with 1.25 being the low water mark. To have the euro at 1.50 isn’t their preference either…
Speaking of data today… Canada will print its third quarter GDP today, and Australia will print their third quarter GDP late today (tomorrow morning for them)… I would look for Canada to outperform Australia and, as I told you yesterday, I’m looking for a softer GDP in Australia after one year of rate hikes.
And In Brazil, inflation is really setting into the Brazilian economy. Brazil’s IGP-M Price Index – which measures consumer, construction and wholesale prices – jumped 1.45% in November… Since January of 2010, this inflation measure has been positive each month, but November’s increase of 1.45% is the largest move. This is what happens when a Central Bank and government get their hands in the cookie jar.
By that, I mean, inflation in Brazil has been rising all year, and the year started off with the Brazilian Central Bank (BCB) raising interest rates aggressively… But by doing so, it caught the markets’ attention, and the money flowed into Brazil, pushing the Brazilian real (BRL) stronger, and stronger. That’s when the BCB and government decided that they didn’t want to see the real that strong, and cut off the interest rate hikes, and implemented all sorts of hoops for investors to jump through if they wanted to invest in Brazil.
But the kicker was the cutting off of interest rate hikes… And now… Inflation is the strongest it’s been all year! I would think that the BCB will be back to the rate hike table soon, especially if next month’s inflation number is as strong…
This news of stronger inflation in Brazil allowed the real to rally yesterday, and overnight, with the markets thinking like me that the BCB would be back to the rate hike table soon.
Well… I see where the President has announced a pay freeze for federal civilian employees… I don’t think he got the message loud and clear, though… A pay freeze is OK… But didn’t the recent elections tell the government that the public supports measures to narrow the budget deficit? Freezing pay doesn’t narrow the deficit… Only cutting the fat narrows the deficit…
And in my never-ending attempt to show you what China is doing to gain wider distribution of the renminbi (CNY)… It was reported overnight that renminbi deposits, which can now be made in Hong Kong, jumped by a record $10 billion-worth in October… And in other news… China offered 5 billion renminbi-worth of bonds in Hong Kong, and they were oversubscribed by 10 times! Folks, this means that investors all around the world see Chinese bonds as a very good opportunity to hold renminbi assets… And, to me, I do believe these investors are looking at the faster appreciation that we’ve seen recently in the renminbi, and licking their chops that they get paid interest on the bonds, while the renminbi appreciates…
These are baby steps, folks… Baby steps to the ultimate goal for the renminbi, and that is to have it be the world’s reserve currency.
Oil, which was priced at $81.04 on November 17th, is priced today at $85.45! This rise in the oil price is interesting to me, given the claim that there’s deflation in our economy… Deflated prices in houses, yes… But overall economic deflation is a bunch of bunk… I’ve shown you the price increases in food this year, and just think about your personal economics. I’m sure you have your own example of rising inflation… But then the “Bernank” is going to implement more quantitative easing? I just can’t get this out of mind… The “Bernank” is doing nothing more than throwing gas on the inflation fire we already have! Can you say hyperinflation?
OK… Maybe I went a little overboard there, and hyperinflation is a little harsh… But… When it happens, you’ll be able to say that Chuck told you about it long before the media got the memo.
Then there was this from US News & World Report…
US can take lessons from Europe’s debt crisis
It might be a matter of time before the debt crisis that first struck Greece and then spread to Ireland reaches the US, according to US News & World Report. One lesson the US can learn from Europe’s crisis is that when debt starts getting out of hand, don’t stall. No country, not even China, has enough money to bail out the US.
To recap… The euro has fallen through its 200-day moving average, which could be an indicator that more weakness is on the way. German unemployment is at the best level since 1992, but the periphery countries are weighing down the euro, and German data is being ignored. Brazilian inflation is soaring, and we get to see the third quarter GDP reports from Canada and Australia today.
Chuck Butlerfor The Daily Reckoning
Chuck Butler is President of EverBank
Soooo, if all the dominoes fall around Germany and those dominoes can no longer afford German Products at any cost……
Doesn’t look good for any European country!
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