Norway's Oil and Gas Production Shut Down

Good day. A very, very long day for me yesterday here on the desk. I guess when I tell my doctors that I work only “half days,” that 12 hours is a half-day! So I’m not lying!

But that was yesterday, and today is a new day! In fact, I’ll be MIA from the desk for a few hours today, as I go to the hospital and have two scans done. They are going to do an MRI of my brain. OK, smart alecks, I know you’re saying, “They won’t find anything there!” Which is a given, but doesn’t need to be said! HA! And then a whole-body bone scan, in which I get shot up with radioactive stuff. Then back to the desk. So a very busy day for me!

I did an interview with yesterday morning, and at that time, gold was down $3 and the currencies were trying to find some legs. I told the interviewer that once again the markets were rewarding the dollar for the just plain awful jobs data from Friday, but when the dust settled on all that, that we could or should very well see gold recover and head back to $1,600, and the currencies find some love. And voila! By the end of the day, that’s exactly what we were seeing!

Gold gained $5 on the day and has added another $3 this morning, as it heads back to $1,600, and the currencies were pulled out of their funk by the Australian dollar (AUD) and euro (EUR). The A$ gained back above $1.02, and the euro traded back to 1.2315.

There is some troubling news this morning, however, for the A$. Chinese imports gained 6.3%, which — on the outside — looks pretty strong, eh? But forecasts had imports gaining over 11%, so when compared with the forecasts, 6.3% doesn’t look so strong, according to the “experts.” If China’s imports are slowing down, that means the exports from Australia to China are slowing down, and that’s not a good thing for the A$.

But remember what I’ve said now two previous times: It is believed that China’s economy bottomed in the second quarter. So all the data that take in what happened in the second quarter, like this imports report, are going to reflect that bottoming of the economy. And we’ll all be looking in the rearview mirror at this stuff. But the markets will do their best and say that data were bad, so everything in Asia will be bad in the third quarter. Of course, that remains to be seen, but that’s what we’ll see, folks. It just doesn’t seem right, but as I told my interviewer yesterday, I learned long ago that the markets are never wrong. You may think they are wrong, but to trade against them is not going to turn out good for you!

Of course, I tell you about how the Chinese data could be bad for the A$, and I sit here and watch the A$ gain one-quarter of a cent! But that’s Mr. Market, folks. Don’t try to pin him down. I have to be clear as mud here: Short term, the A$ is still gaining, but looking down the road, with global growth slowing down, the A$ could be in for some problems. But let’s just say that the A$ loses its grip on parity and falls to 95 cents. Hey! Think about that — 95 cents is still a kick-butt price for the A$! When we began this journey with the weak dollar trend, the A$ traded less than 50 cents!

And to temper that weaker-than-forecast imports number, China’s trade surplus was wider than expected in June. In dollar terms, it was $31.7 billion, and was forecast to be $24 billion, so this obviously reflects the weaker imports number.

Speaking of troubling news, a dear reader (thanks, Bob!) sent me a link to a story on Norway’s oil sector. Oil and gas production in Norway will be shut down from Tuesday, because of a dispute over pensions. Norway’s three main unions have been on strike for 15 days, in a dispute over offshore workers’ demands for the right to retire early, at 62 with full pension. As I look at the currency screens, I see that this news hasn’t hit the krone (NOK) as of this morning, and the krone has gained a bit, as it follows the euro around.

This news might not be affecting the krone right now, but should it carry on for longer than the markets feel comfortable with, that won’t be the case. What the news is affecting now is the price of oil. I had noticed yesterday that the price of oil had risen while I was out, and it gained another buck yesterday, to $85.44.

So in the end, the shutdown news might not be good for the krone, but the oil price is rising, and that fact supports a stronger krone! The other petrol currencies are also seeing some traction from the rising oil price. Currencies like the Canadian dollar (CAD), Brazilian real (BRL), Russian ruble (RUB), U.K. sterling (GBP) and even the Mexican peso (MXN).

Yesterday, the U.S. Treasury 10-year note traded with a 1.51% yield. And just when you think, Now, who in the world would want to own U.S. debt at a 1.50% yield or less when the broker takes his pound of flesh from the trade to pay for his home in the Hamptons and I see where Germany sold T-bills at a negative 0.34% yield — that’s just plain strange, folks! Why would you buy something with a negative yield? Here again, I told the interviewer, that why wouldn’t these buyers of negative yield opt for gold instead? At least you own something of value!

But nothing like needing to auction $32 billion of new Treasuries today here in the U.S. to get the yields to rise a bit. Let’s see: Last year, the Fed Reserve bought 61% of Treasuries issued to finance out debt. So if that holds true — and I don’t have any reason to believe it isn’t holding true this year; if anything, the percentage would be rising — then the Fed will have to buck up almost $20 billion in this auction. That’s just not right, folks. The central bank should NOT be participating in auctions by 61%… or 50%… or even 25%. Some, sure, to even out trade, but ratcheting up the percentage is wrong, just plain wrong! But as long as the U.S. public doesn’t rise up and protest this, it will continue. Instead, we protest. Wait, what did we protest?

Speaking of Fed participation in the markets. Tomorrow afternoon, we will get the minutes of the last FOMC meeting. In addition, we’ll see what two voting members of the FOMC (Williams and Lockhart) have to say. Add those together and any signs of further quantitative easing (QE) will likely be a lightning rod for the currencies and gold. Of course, the downside risk is that the markets find nothing in those things that leads them to believe QE3 is on its way, and that could be good for the dollar.

I’m going to stop there with the Fed and all that, before I begin to get a rash, which normally shows up whenever I read about what’s going on at the Fed.

Germany’s Constitutional Court will begin to hear complaints about the ESM today, but no decision will be made until later this month. German Finance Minister Wolfgang Schaeuble warned the court that any major delay could cause uncertainty in the financial markets once again. Remember, the eurozone leaders decided at their summit last month that ESM could fund the Spanish bank recapitalization. The German Parliament approved it last Friday, but the Constitutional Court has to give it their blessing, and right now, there are 12,000 complaints that have been filed with the court that debate the legality of using this fund like that. Good luck with that, guys.

And I read a story on the Bloomie this morning about how the Danish krone is getting some attention, as the anti-euro currency, that could very well be a destination for those seeking safety if the euro breaks up. OK. I still don’t believe that the euro will break up. Now, three years down the road, it may not look like it does today regarding members, but I don’t see it breaking up. But when questioning this trade, I have to revert back to what I said above. The markets are never wrong, and to ignore that is at one’s own peril. But be careful here. Once the markets see that the euro is not going to break up, the exit from this currency could get ugly. But those are just my opinions. I could be wrong!

Then There Was This: Longtime readers know how much I like the stuff of economist Nouriel Roubini. It’s been a long time since I quoted him, but I saw this on and thought it played well with my back end of the financial storm call. Here’s Mr. Roubini:.

“‘Dr. Doom’ Nouriel Roubini says the ‘perfect storm’ scenario he forecast for the global economy earlier this year is unfolding right now as growth slows in the U.S., Europe as well as China. In May, Roubini predicted four elements — stalling growth in the U.S.; debt troubles in Europe; a slowdown in emerging markets, particularly China; and military conflict in Iran — would come together to create a storm for the global economy in 2013.

“‘[The] 2013 perfect storm scenario I wrote on months ago is unfolding,’ Roubini said on Twitter on Monday…

“Roubini said that unlike in 2008 when central banks had ‘policy bullets’ to stimulate the global economy, this time around policymakers are ‘running out of rabbits to pull out of the hat.’”

Chuck again. Yes, the backside of the financial storm is hitting our shores. Are you ready?

To recap: The dust has settled on Friday’s Jobs Jamboree, and with that, the currencies and gold are gaining some traction this morning, after starting their recovery yesterday afternoon. China’s imports were weaker than forecast, but that ratcheted up their trade surplus! Norway’s oil and gas production is shut down due to strikes, and while that hasn’t hurt the Norwegian krone yet, it has given a boost to oil prices. The U.S. will auction $32 billion of new Treasuries today. How much will the Fed participate in that auction?

Chuck Butler
for The Daily Reckoning