Currencies and Commodities Sell Off

Front and center this morning, I’m as proud as a peacock this morning. I just read an email from good friend – and excellent market analyst – Mary Anne Aden… Mary Anne sent me a note letting me know that the one and only Richard Russell had quoted me in his letter June 10th… She said it went something like… “this is from Chuck Butler’s always terrific column…” WOW! Being quoted in Richard Russell’s letter is like the top of the list for me!

OK, Chuck, you have to come down from “cloud nine”… Even the fact that the currencies and commodities have sold off in the overnight markets can’t stop me from this seashells and balloons feeling.

Yes… The currencies and commodities have sold-off in the overnight markets… Even a good print by Germany’s think tank IFO on business confidence, hasn’t wrapped a tourniquet around this sell-off… This wasn’t a “one and done” for business confidence in Germany either! This happens to be the third consecutive month of positive gains for this data. Now… One would think that this should signal something, right? I mean, if I walked up to you on the street and said, “Germany’s Business Confidence has posted positive gains for three consecutive months”… You would probably, no wait, definitely think (because I know you are very astute, and pay attention in class each day), that Germany’s economy must be coming out of their recession… Hmmm… Yes, that’s what I would think too! But… The euro (EUR) isn’t showing any thoughts by traders like that!

I think that in the next print of GDP in Germany (the Eurozone’s largest economy), we’ll see a nice improvement from the previous quarter’s negative 6.7% decline! I’m not thinking that GDP will go to a positive print… But if it knocks out half of that decline, that would show that things are improving. And if things are improving in Germany, the rest of the Eurozone will grab on to the coat tails!

The U.S. Fed meets this week, in an otherwise quiet data week… We’ll have to see what’s up Big Ben’s sleeve now. I would suspect that this week to be a non-event… But in August, the Fed will most likely be setting off some late fireworks, with an increase in their bond buying program… Quantitative easing… UGH! And that thought leads me talk about the amount of supply hitting the markets in the near future… But I wont’ bore you with my description of the supply. Here is my friend, Ian Mathias…

My friend, Ian Mathias over at The 5-Minute Forecast, never ceases to amaze me the way he describes things! Here’s a piece of his from Friday, June 19th…

“The U.S. government announced yesterday it will auction a record $104 billion in debt next week. Despite obvious warning signs that the world has had its fill of American paper, the Treasury will forge ahead: $40 billion in 2-years Tuesday, $37 billion in 5-year notes Wednesday and $27 billion in 7-year garbage on Thursday.

“They must ‘get it.’ Last week’s sharp rise in 10-year yields was as sure a sign as any that investors everywhere are getting cold feet. A prudent government would take a break…let things cool off. But there’s no rest for Uncle Sam, or his Treasury. They’ve got the mother of all Ponzi schemes to run:”

I’ll get to meet up with Ian next month in Vancouver… I’m looking forward to that!

So… Like I said, the data is pretty weak this week… So, we’ll be scratching and clawing for the markets to throw us bone.

Down Under… The Aussie dollar (AUD) has taken on some water overnight after a story printed and quoted the Morning Herald’s economic editor. The quote went something like this… “The market was wrong in discounting little to no chance of another RBA cut this year, and a high chance of a hike in the first few months of next year.”

You might recall last week I told you that the market in Australia had basically decided that the Reserve Bank of Australia (RBA) had come to an end of their rate cut cycle… I then threw in my own two-cents and said that the first rate hike would come in the first quarter next year… Well, the Economics Editor at the Morning Herald doesn’t agree. And the Aussie dollar has sold off big time since the paper hit the news stands! Come on! That’s just one person’s opinion, isn’t it? Last week, the market players were all about the end of rate cuts… And they are now going to be swayed by one opinion? Where’s the intestinal fortitude?

And then there was this… Not happy with having their heavy hand in just about everything these days… The Fed is reviewing the repo market… Apparently, the poor old repo market is getting blamed for exacerbating the financial turmoil that followed the collapse of Lehman Brothers last fall. For those of you not familiar with this market… It’s a utility for overnight funding… (Some go longer than overnight, but the overnight repo and rev repo market is what is being reviewed) So… Look for more government reforms in a market that has existed for many years just fine and dandy.

The Daily Reckoning