A HUGE Data Day!

Good day… And a Happy Friday to one and all! Welcome to June too! June is busting out all over, all over the meadows and the fields… And you thought I was just an old rock-n-roller! That’s right, June is here. Summer will officially begin in a couple of weeks, and before we know it, we’ll be celebrating the 4th of July, and the year will be half over!

However, before we even head into the first weekend of June, we have a Jobs Jamboree to deal with. This jobs data has once again become a show stopper, with trading desks coming to a halt to see what the data reveals, for so much is riding on job creation in the United States, we certainly can’t experience a strong sustained economy without creating new jobs… And quite frankly, I mean good jobs, with benefits, and a pension plan… Which brings me to my first problem with the Jobs Jamboree.

The data only tells us how many jobs were created, not what type – and certainly not who filled them. So, how can the markets get so lathered up over data that has question marks all over it? And that leads me to my second problem with the Jobs Jamboree. It’s not comprised of real jobs creation. There is this little thing called the birth/death model, that makes adjustments to the real number every month. I talked about this yesterday, so I won’t get on my soapbox again over it, but there they are… My two problems with the markets getting all lathered up over the Jobs Jamboree!

So… Going into the report, the experts have forecast a gain of 132K, which has been revised downward all week. At the beginning of the week, there were forecasts for 175K, so I guess the “experts” aren’t feeling so strong about job creation. I don’t have a feel for this month’s data. At this time of year, we have the college grads filling jobs, never mind that they might be intern jobs that don’t even pay minimum wage, but they’re filling them! So… I’ll just say that while I think the data will disappoint, I wouldn’t be surprised to see it come in better than expected.

The currencies were range trading again yesterday, so no real big shakes. The Canadian dollar/loonie (CAD) continues to keep the pressure on the greenback though. Yesterday, we had Canadian first quarter GDP print, and it surprised on the upside! Here’s the skinny.

Canada’s economy rallied back in early 2007, growing at a 3.7% annualized pace, the fastest in a year and a half and slightly stronger than expectations for a 3.6% print. Domestic demand growth was solid, running at 3.2%. Any time you see that “strong / solid Domestic Demand” you know you have a potential for inflation, and rate hikes… I told a Canadian radio guy the other day, that all these rate hikes that I tallied up for the Bank of Canada into next year, could be the fire that the loonie needs to get to par with the greenback… But don’t think the Canadian Gov’t won’t fight that move every step of the way!

The Eurozone had their GDP for the first quarter print this morning, and it was quite impressive considering the fact that the Eurozone’s largest economy, Germany, took on a VAT (new tax) in January! The Eurozone economy grew 0.6% from the fourth quarter, and 0.9% overall in the first quater. The growth was fueled by corporate investment, which reached a 10-year high! And, unemployment fell to 7.1%… Note, there are no birth/death models in the Eurozone, only real job creation.

The good times keep rolling in for the Eurozone, and the European Central Bank (ECB) is going to make certain that the good times don’t get out of hand! The ECB will be raising rates next week, when they meet. The recent hawkish statements by ECB members are telling me that the ECB wants to leave the rate hike door open after next week’s hike. These are all things that will continue to underpin the euro (EUR). And once the dolt mentality in the world begins to see the problem with owning a currency (the dollar) that even its own country’s Treasury Department and Administration want to see go lower, this should propel the euro to the 1.40 level and beyond.

But, then if the dolt mentality doesn’t end, the euro will struggle to get there. But I still believe it can!

Geez Louise, even the Fed Heads are talking about the amount of Treasuries held by foreigners that I’ve highlighted this week. In a report from Bloomberg, here’s New York Federal Reserve Executive Vice President Terrence Checki talking about it:

“‘The growing interest in earning better returns on reserve assets may signal reduced caution going forward,’ Checki told a conference in Athens today. ‘Capital flows from the emerging world could play an important new role in how future episodes of stress in the financial system originate.’

“Checki, who heads the New York Fed’s emerging markets and international affairs division, said recent stability in global markets ‘may contain the seeds of its own undoing.’ Long-term trends ‘are inherently dangerous’ because they can ‘make people forget what different environments look like.’

“‘This makes reversals all the more sudden, powerful and surprising,’ Checki said.”

Oh well… Today, we’ll also see my faves, personal income and spending. I’m sure they will show that we, as consumers, continue to spend more than we make! I just wonder how much longer that will continue. Equity in homes has been spent… credit cards are becoming maxed out.

This is a HUGE data day, as we’ll also see the ISM Manufacturing Index for May. I don’t see this falling much from April’s 54.7 reading. But it should fall… And then finally, the U. of Michigan consumer confidence, which I don’t even want to get started on again…

Oh… Before I head to the Big Finish… Did you see that the U.S. first quarter GDP was revised down to 0.6%? I bet you didn’t see that news all over your news reports on TV last night did you? That’s not “feel good” data! Anyway… The revision tells me that the Fed is now wedged even tighter between those two rocks. They need to raise rates, because even to their admission, inflation problems still persist, but they can’t because the economy is teetering on recession.

Of course one of our fave economists, that tells it like it is, John Williams, says the United States is already in an inflation recession. I don’t like leaving you on a note like that, but I’m plum out of stuff to talk about today; this data stuff drives me up a wall, especially when we have a day like today. What piece of data will the markets focus on the most? Jobs…

So… I’ll leave you with a note about the commodity currencies of Australia, New Zealand, and Canada. They are all enjoying good performances recently, and unless China shuts down tomorrow, this would look to be a continuing thing!

Currencies today: A$ .8290, kiwi .7395, C$ .9373, euro 1.3440, sterling 1.9795, Swiss .8140, ISK 61.70, rand 7.12, krone 6.0375, SEK 6.93, forint 186.20, zloty 2.84, koruna 21.0670, yen 121.90, baht 33, sing 1.53, HKD 7.81, INR 40.50, China 7.6470, pesos 10.74, dollar index 82.40, Silver $13.60, and Gold… $665.35

That’s it for today… Raindrops keep falling on my head… We’ve been stuck in a rain pattern here in St. Louis, that I now hear will continue through the weekend! UGH! Oh well, I certainly can’t control that! My little buddy, Alex is supposed to play a baseball game tomorrow, but unless the sun comes out and bakes the ground, it would be more like a mud ball game! (Which I would bet some kids would prefer to play!) And a Happy Birthday to my darling daughter’s husband, Jerry… Have a great Friday and weekend, and be careful out there!

Chuck Butler — June 01, 2008

The Daily Reckoning