China Posts A Huge Trade Surplus!

Good day. Wow! What a great Opening Day, yesterday! The weather was beautiful, the stadium is beautiful, and the Cardinals were beautiful. A truly grand day for yours truly! More later (as if you cared! Ha!).

As expected yesterday, the currencies just kind of hemmed and hawed the whole day, as the day was void of any rhetoric or data to move the markets. Today should be a carbon copy of yesterday, as long as the “strong dollar” or “higher interest rates” rhetoric doesn’t get going.

A reader sent me an article from the that sound as if I had written it myself! This is strange stuff, because these are all the things I’ve talked to you about in the past. Here are some snippets. The author is Steve Johnson, and this appeared in yesterday’s weekly:

“But there is now serious talk that the forex market’s attention may be about to shift and focus once more on structural issues such as current account deficits and central bank reserve diversification. Given the economic imbalances of the U.S., that would put pressure on the dollar.

“David Bloom, currency analyst at HSBC, still argues that U.S. rates will peak at 5.5 per cent, and believes the market is premature in spying regime change. Yet, even he offers no consolation to dollar bulls, eyeing the euro’s return to its highs of $1.35 next year.

“‘The dollar will weaken dramatically,’ he says. ‘All that nonsense about current account deficits not mattering will disappear in a puff of smoke.'”

If you get a chance to read the whole article, I highly recommend it (the is a paid subscription).

OK. Overnight, China announced that their trade surplus in March widened to the second-highest level on record: $11.2 billion! This ought to stir up a mess of hornets back on Capitol Hill! As I’ve explained in the past, U.S. Senators Schumer and Graham have been actively seeking legislature that would put huge tariffs on Chinese goods coming into the United States.  Of course, these chuckleheads haven’t any idea what that would do to the U.S. economy. But, let them squawk; they’ll figure it out eventually!

Don’t forget, China’s president will be here to talk to President Bush on April 20, 2006.

A step backward this morning for the German economic recovery: Investor confidence, as measured by the think tank ZEW, unexpectedly backed off in March from 63.4 to 62.7. Higher oil prices have put a damper on investor confidence – as it probably should! We don’t worry about those kinds of things in this country, because we know that “the government will always take care of us.” Hello, McFly? Are you in there? McFly?

Anyway, before I go off a tangent that would get really ugly, the euro has backed off a bit on the news falling from 1.2143 to 1.2109 – only to bounce back to the current level of 1.2120, which aren’t really the kind of moves we saw last week. I this like much better! As my father used to tell me, “Son… if you’re going to swing at the ball…swing hard!”

The Thai baht continues to cook with gas and is about ready to leave the 38 figure! This is the strongest the currency has been versus the dollar since 2000! And, as I told you before, the markets were worried the central bank was going to get bogged down with the political storm that was brewing in Thailand, and therefore kept a governor on the baht. Now that the political storm has been dealt with, the central bank can get back to the task at hand, which means keeping a lid on inflation with interest rate hikes! Oh, for those of you keeping score at home, the baht is up almost 8% versus the dollar this year, and looking to keep the pressure on the dollar!

Well, all those people (experts) that said the next interest rate move in Australia would be down, are feeling a bit uneasy these days. Recent data leads me, and now the markets, to believe the rate hike watch is now back on the table! For instance: last night, the Australian business confidence survey hit the highest level in over two years! I really think that the drag on the Aussie dollar by its kissin’ cousin across the Tasman has been played out, and it’s time for the Aussie to shine!

I want to go back and touch all the bases regarding last week’s ECB meeting where Trichet let the markets know there would not be a rate hike in May (of course long-time readers know that Uncle Charlie told you that the next rate hike will come in June, but I won’t let that get in the way of a good story). There was nothing dovish in what Trichet was saying; he was not diluting the message in any way, shape or form. The ECB still has their hands on the rate-hike trigger.

They just didn’t want the markets dictating to them when the rate hikes would happen! I also think the ECB was hoping to avoid a stronger euro for a bit longer. They may have achieved all their goals last week, but the most important thing to remember is that rates are going higher. The euro should benefit big time from that!

Currencies today: A$ .7310, kiwi .61, C$ .8730, euro 1.2120, sterling 1.7430, Swiss .7685, ISK 74, rand 6.15, krone 6.45, forint 218.65, zloty 3.24, koruna 23.5650, yen 118.60, baht 38, sing 1.6125, China 8.005, pesos 11.09, dollar index 89.62, silver $12.74, and gold $599

That’s it for today. Thanks to my good friend Rick, for allowing me to join his group for lunch before yesterday’s game. The new stadium is being referred to as “baseball heaven.” It sure is beautiful! Now if we can only host the World Series there this year! Come back ready to rock and roll tomorrow, because the Twin Deficits of Trade and Budget will be printed. It should be a real show! Have a great Tuesday!

Chuck Butler
April 11, 2006

The Daily Reckoning