Eurozone Retail Sales Soar!

Good day… And a Happy Friday to one and all! I’m back for Las Vegas, all in one piece! I walked in the door last night and turned right around to head out to my little buddy’s baseball game… It was cold here and I froze! Quite a change from the 90 degree weather in Las Vegas!

Chris tells me that we saw a lot of traders and participants take profits off the table yesterday, allowing the dollar to breathe a sigh of relief. That shouldn’t take too long, and from what I’m seeing this morning, it has already ended! The euro is ticking upward, and why not? This morning we saw April’s Eurozone Retail Sales, which just happened to increase the most in the last 10 months!

This report really illustrates a theme that I started about two years ago, and that Chris has brought back to everyone’s attention again… The Tale of Two Cycles… The U.S. economy is spent… But Europe is up and coming and seeing Retail Sales kick some tail and take names later is really spraying proof all over that that theme!

And don’t look now… The that sound of something falling past you is the Federal Reserve’s Trade-Weighted Dollar Index. This is different that the “dollar index” that you normally hear about… The Fed’s Trade-Weighted Dollar Index (FTWDI) fell to its lowest level since its inception in 1971. If you are old enough, or have even listened to one of my presentations you know that the dollar was bounced from the Bretton Woods Agreement in 1971… So, since the beginning of “float time” the FTWDI has not been this low…

“It’s just the tip of the iceberg of dollar weakness”, said Naomi Fink, senior currency strategist at BNP Paribas…

Yes, Naomi, you are correct… But we’ve got to get the Asian currencies participating in the dollar weakness before we see the underbelly of that iceberg! And speaking of Asian currencies… The Japanese yen softened VS the dollar once again last night… The Bank of Japan continues to allow the yen to be the “financing currency” of the carry trade.

Reserve Bank of New Zealand’s (RBNZ) Gov. Bollard, on the other hand, is not happy to see his currency, the kiwi, continue to be the “investing currency” of the carry trade… Bollard fired a warning shot across the bows of the currency market, in his statement that followed a hike of New Zealand interest rates… I would think that a statement such as “the exchange rate is now at levels that are both exceptional by historical standards and unjustified on the basis of medium-term fundamentals” would go a long way toward bringing this nonsense to an end…

However, when you raise interest rates to the highest level in the industrialized world… You are asking for trouble… (that is if you are paranoid of a surging economy, like Bollard is!) Of course, Bollard did not have any other choice, with the soaring domestic demand, and inflation in New Zealand… He should also put the clamps on money supply… Because doing one without the other is usually not the answer to putting a lid on inflation… Just ask Big Al Greenspan and his replacement… Big Ben Bernanke…

Or… Maybe it hasn’t even occurred to these guys that money supply is inflation, and if you don’t do something to put a lid on it… Well… You get what you deserve!

Anyway… Kiwi suffered a bit… But is now back to 74-cents and soon the Bollard statement will be a distant memory… Unless he does something about it! Nah… He would just rather blame currency investors for driving his currency too high… Which, is the problem with people these days… No one wants to take the blame… Responsibility… For anything… It’s always someone else’s fault, eh?

OK… Back to currencies… I was gone away on a different tangent for awhile there, but I’m back now…

Another Central Bank member trying jawbone his currency down… The Bank of England’s Tucker was spewing some stupid statements yesterday about “CPI still expected to fall back quite sharply” How does he know that? Was he one of the dolts that voted for a rate cut in August of 2005, only to have egg on their faces and have to go back to a rate hike cycle in the U.K.? Sounds like he was!

However, his statement has had some negative affects on pound sterling, which is just what he set out to do, unfortunately! I don’t think this brief sell off of sterling is anything but a buying opportunity!

I was disappointed to hear that Norway’s Norges Bank left rates unchanged on Wednesday… The markets had counted their eggs already on this rate hike, and thus were disappointed to see the Central Bank not come through. When the markets are disappointed with a Central Bank, you can bet your sweet bippee that the markets will take the currency to the woodshed! The krone did see some disappointed traders yesterday, but as long as the euro keeps knock, knock, knocking on the 1.40 level’s door, the krone will be underpinned… So… I would look to use this disappointment as an opportunity…

Here in the U.S. today, we’ll see the color of the 1st QTR GDP… Which is forecast right now to have fallen to 1.8%, from the previous quarter’s 2.5% growth. As if 2.5% growth for the U.S. wasn’t bad enough, now we have to stare down the barrel of 1.8% growth! UGH! The thing that really hits me here is simply that with GDP falling, the debt percentage makeup grows higher… And higher… And well, you get the picture, and it’s not something you want to hang on an empty wall at home!

We’ll also see another piece of data today that carries a lot of weight… Personal Consumption… This is what the Fed uses to gauge inflation, not that stupid CPI! The Employment Cost Index used to be a Fed Fave, but has been kicked to the side of the road these days… But I still like to look at it, as it really gives us a view at wage pressures on inflation… And to round out the day, we’ll see the U. of Michigan Consumer Confidence’s final report for April…

So… This could be a volatile day in the currencies with all this data… As I look at the screens again as I prepare for the Big Finish, I see the euro has ticked up 25 ticks while I’ve been writing! It is now close to its all time high again of 1.3666…. Knock, knock, knocking on the 1.40’s level door…

Currencies today: A$ .8310, kiwi .7425, C$ .8955, euro 1.3650, sterling 2, Swiss .8305, ISK 64.25, rand 7.01, krone 5.96, SEK 6.70, forint 180.40, zloty 2.77, koruna 20.6220, yen 119.30, baht 32.75, sing 1.5160, HKD 7.82, INR 41.08, China 7.7150, pesos 10.9450, dollar index 81.55, Silver $13.36, and Gold… $675

That’s it for today… I see the orthopedic this morning to see what they want to do with the hemotoma that has collected in my hip joint from the muscle tear I had… I suspect nothing, as the hip seems to be getting better every day! I missed a day game at Busch yesterday, I sure hope that doesn’t happen again! HA! Great to be back, and on a Friday! I’m ready for a good coffee and bagel… Sure hope Michelle is early today! Time to go now, so have a great Friday and Weekend!

Chuck Butler — April 27, 2007

The Daily Reckoning