Greece Dominates Markets' Focus

The mini-rally that began in Europe yesterday, remains in place this morning, with the currencies trading a very tight range all day yesterday. There was one brief bump higher about midday, but that didn’t last long… The reason for the “bump” was news from France that they were all set to roll the maturities of Greek debt… You can only imagine the joke I came up with when hearing that the French were the first to “roll over the maturities”… All in fun, no one was hurt, and no animals were used in the story!

European stocks are stronger this morning, which indicates to me that there’s a “relief” feeling in the Eurozone this morning. As I explained yesterday… Tomorrow, the Austerity measures for Greece are voted on “in theory”… Thursday is when the Greek MP’s vote on the implementation of the measures; that’s when things will get sticky… So… As today goes along, we could see additional euro strength (EUR) versus the dollar, but then lose quickly Thursday morning, or afternoon, depending on when the news begins to hit the markets on the “implementation” vote…

The euro did trade to 1.4317 overnight, but has slipped back to 1.4270, as I write… But, as I said, the back and forth on “whether to buy euros or sell them” will continue with each news story…

Yesterday, the gold price really slipped further down and made a strong move below $1,500… Someone on the desk said out loud, that his customer was surprised by this move… I was taken aback by that comment, considering for over two months, I’ve told everyone that this type of move back to the dollar could very well happen once QE2 ended… The currencies and metals are doing exactly what I feared they would do, once Big Ben Bernanke sounded the “all clear” horn for the economy… That’s why I continually told non-dollar holders of currencies and metals to batten down the hatches, or sell ahead of the QE announcement…

So… Now, here we are… And the currencies and metals are doing the rope-a-dope while the dollar lands some stinging blows… Well… We could get the board games out to pass the time before the markets realize that the economy is nowhere near “all clear”, and the cries for more stimulus begin… For it will be then that this impersonation by the dollar of a prize fighter, will end… At least that’s my story and I’m sticking to it! I could be terribly wrong about this economy, folks… But, that’s where you’ll have to decide, what team you want to hitch your horses to… Big Ben Bernanke’s, or mine… Hey! I’m not dissing Big Ben, I’m just saying that I don’t agree that the economy has reached an all clear status…

We’ll get more details on the weak state of the economy today, when the S&P/CaseShiller Home Price Index prints for April… In fact, the forecasters are of the belief that the home prices in 20 cities fell 4% this April from April 2010, which would be the biggest year-over-year drop since the height of the mortgage meltdown, November 2009… Of course, people then thought that home prices had hit a bottom, but I was one of the lone wolves out there telling anyone who would listen that there would be another 10% drop in home prices… And I’m sure this is like reminding everyone of the Hindenburg, but remember in April of 2007 when US Treasury Secretary Henry Paulson said that “the housing market correction appears to be at or near its bottom” and that “troubles in the subprime mortgage market will not likely spread throughout the economy.”

OK… Sorry for pulling that one out of my hat of memories… Bad memories at that!

In another sign that the economy hasn’t reached “all clear” status yet (in my book anyway)… Yesterday, it was reported that Consumer Spending was the weakest it has been in 20 months! And on top of that, Personal Income has really hit another “soft patch”… Income is still growing, yes… but… It’s just not strong enough to push the economy closer to recovery…

OK… Let’s go see what’s happening elsewhere, this US economic stuff really brings me down… UGH!

Yesterday, I told you that there were these crazy stories going around in Australia that the Reserve Bank of Australia (RBA) would make an “emergency rate cut” of 25 basis points (1/4%)… And that the interest rate futures had priced one in already! Obviously, news like that hurts the Aussie dollar (AUD). So… It was good to see the interest rate futures gain back some ground overnight, and the talk of a rate cut begin to dissipate. I said it yesterday, so I’ll say it again, I just don’t see the RBA cutting rates because of one slow GDP report that had all kinds of hits to it, like a draught, a flood, a cyclone the size of the US, and other things…

So… It was good to see all that talk fade a bit, and get back to fundamentals… Last night, RBA Assistant Governor Debelle gave a speech, where he downplayed the contagion risks from Greece… I would like to have heard that speech, as this is the type of stuff that people need to hear… Again, Greece’s economy is the size of Kentucky’s!

The Canadian dollar/loonie (CAD) has really been on the selling blocks the past two months, with the slide in oil prices the main culprit… But the loonie is holding above its 200-day moving average, so there’s some hope there that it won’t fall further… But oil prices hold the cards on that one… And any further sign that the Bank of Canada (BOC) will finally make that second rate hike that the markets have waited a long time for…

In the “Crown” countries of Norway and Sweden… I haven’t seen anything lately that would make me call off or change my call of rate hikes in August and October for Norway… But Sweden saw their May retail sales weaken by a bit more than expected, which doesn’t bode well for the Riksbank to keep with their intended rate hikes. But that could change, and I do expect it to, with the Riksbank coming back to the rate hike table before year-end…

And then Switzerland… Yesterday I told you about how the Swiss franc (CHF) was knocking on the door of $1.20, and it still is this morning… Apparently $1.20 is quite the hurdle for the franc to clear… So the franc will have to tighten the laces of those track shoes and go for the clearing… I had a reader ask me why Switzerland decided to keep the franc and not join the euro… That’s just the Swiss… They are independent, always have been… And it sure hasn’t hurt them to remain that way, and not a part of the euro!

There have been other European countries with euro aspirations though… Countries like: Sweden, Denmark, Poland, Hungary, and the Czech Republic… Of course the UK was the big fish that got away, thanks to George Soros… And… Norway… Which I just don’t see joining the euro at any time in the future… Hey! If you had what the Times called the “safest currency in the world” would you exchange it for something that contained the likes of: Greece, Portugal, Ireland, and so on? I don’t think so!

I see that gold has gained back its losses from yesterday and sits above $1,500 again, this morning. For anyone that bought at the blue light special price yesterday, you’ve got to be feeling pretty good about that… But like I said above… this could be a trying time for metals holders… So, keep that feeling, and look for further bargains, eh?

Then there was this… OK… A few readers asked me to explain why I said I didn’t like George Soros… Well… There are lots of reasons, folks… But let me stick to the one that everyone know about, and the one that I reported on in the Pfennig when it became news… A year or so ago, Soros was interviewed and said that gold was a bubble and that it should be sold… Then it was reported in the news not made up by me, that this guy was actually buying gold… So, wouldn’t that just stick in your craw for a long time?

I was talking to a currency trader friend of mine yesterday, and she agreed that a lot of times it seems that when the “Big Names” come out with a comment that is contrary to what’s going on at the moment in the markets, that maybe they are simply trying to move the markets so they can trade their book… OK… I said it seems that way… I’m not accusing anyone of anything… So, we’ll put it down as a co-inky-dink…

To recap… The currency mini-rally continued throughout the day and overnight sessions, with the currencies trading in a tight range versus the dollar. Gold slid through the $1,500 level, but has rebounded this morning, as European stocks are gaining in advance of the Greek votes on acceptance and implementation of austerity measures. US consumer spending was flat versus the previous month, which doesn’t bode well for a strong economy.

Chuck Butler
for The Daily Reckoning

The Daily Reckoning