Interest Rate Decision Day…

Good day… Well… We’re finally here… The Orlando World Money Show! After setting up yesterday we were able to step outside for a short time, and I have to admit that the sun beating on my face felt great! Nice and warm! And people wonder why everyone wants to come to Florida for the winter!

The currencies remained in a tight range yesterday, with the euro seeing the other side of 1.30 again, but have slipped back into yesterday’s trading clothes ahead of the decisions of two Central Banks this morning. Both the Bank of England (BOE) and the European Central Bank (ECB) rate announcements will come after I hit the “send” button on the Pfennig… But, a preview is in store!

The BOE will announce first, and I don’t think they will tighten going back to back with last month’s surprise hike. However, the BOE showed us, last month, that they can be full of surprises, eh? I think the BOE will talk the talk regarding staying ahead of inflation, and the risks and all that, which will sound hawkish, and keep the pound sterling underpinned.

Ditto that for the ECB… Although I think ECB President, Trichet, has to sound like he wanted to raise rates, but decided to wait until next month. Remember last year, the ECB raised rates in March, and June. This year I believe we can expect rate hikes in both those months again. The ECB could raise rates today, given the large money supply going on in Germany.

As long as Trichet sounds hawkish… The euro will be underpinned, with a bias to go higher.

After seeing some strength in recent days on talk that G-7 ministers will discuss the weakness in Japanese yen, cold water was thrown on that thought by a Japanese official who said yen would NOT be discussed. I’ve laid this out for everyone regarding the G-7 meeting this weekend, so none of this should come as a surprise, but if in fact you did miss class those 50 times I’ve discussed it in the past (OK, 50 is exaggerating a bit!), here it is again.

While the United States snuggles up tight to Japan and pats them on the back, telling the world that yen weakness is OK… The European leaders aren’t feeling the same love for Japanese yen. If you think the yen is weak versus the dollar, you should be a German manufacturer and see how awfully weak the yen is versus the euro!

So, some rumors were going down, someone’s underground, no wait! No Eagles this morning, we only want HAWKS! Anyway, rumors were circulating last week and early this week that the G-7 ministers would include a discussion on the weakness in yen, and add a note in their meeting ending communiqué. This had yen stronger for a couple of days… But with Japanese officials throwing cold water on the rumors… Well… We get yen weakness again.

Of course the conspiracy side of me says that the Japanese officials have been briefed on the G-7 meeting, and took this time to jawbone the yen weaker, knowing all the while that the communiqué will strengthen yen. Same old Japanese… Get it weaker now, so that when the communiqué helps strengthen the yen, it will merely offset the weakness, and we end up back in square one! UGH!

Back here in the United States I saw that the mega home builder, Toll Brothers, saw their revenues fall 19% last year. And then I saw that Hong Kong Shanghai Banking Corp. (HSBC) is going to increase their reserves for loan losses by 20% because their U.S. mortgage business is deteriorating. So, for all those out there that kept waving the flag about an end to the mortgage rot… Put the flag away!

The jobs data in the South Pacific continues to be noteworthy! Both Australia and New Zealand posted strong job creation and weakening job losses in January. Australia’s unemployment rate fell to a 31-year low! WOW! Now I can see the members of the Reserve Bank of Australia (RBA) kicking themselves for not raising rates the other day. Anyway… Both countries are looking at future rate hikes from their respective Reserve Banks, and again, this should help these two currencies, and their yield differential to the rest of the industrialized world is already great!

I’ve got to get going… I’ve got a meeting this bright sunny morning (well, actually it’s still dark outside) with the Big Boss!

Currencies today: A$.7790, kiwi .6850, C$ .8440, euro 1.2990, sterling 1.9680, Swiss .80, ISK 67.90, rand 7.17, krone 6.2330, SEK 7.0125, forint 195.10, zloty 2.9860, koruna 21.72, yen 121.20, baht 34.20, sing 1.5330, HKD 7.8150, INR 44.09, China 7.7487, pesos 10.97, as usual I don’t have access to the dollar index on the road, Silver $13.60, and Gold… $655.30

That’s it for today… As I suspected, no word from either the BOE or ECB at this point. This show in Orlando is HUGE! So, hopefully we can drum up some new accounts! I am truly amazed at these shows, and just how many people come up and say… “I’ve never heard of EverBank, what do you guys do?” My goal is to eliminate that question! The U.S. beat Mexico in soccer last night (I know Ty Keough will have a big smile on his face today!) I tried to watch some of the game, but was too tired to remain awake! Oh well, they won! Have a great Thursday!

Chuck Butler — February 08, 2007

The Daily Reckoning