Jobs Disappoint

Good day. I’m back in the saddle again…back from the Money Show in Orlando. I hope you had the chance to tune in for the Web cast. I hear that a few people were confused by the procedure and time difference. I hope to clear that all up when we do our next one in Las Vegas in May. So, did your team win last night?

Well, the Jobs Jamboree failed to produce the 250,000 new jobs that were forecasted, with the total coming in at 193,000, but the media and talking heads were all about the fall in the overall unemployment rate. Huh? Don’t these guys know? Did they not get the memo? What do we have to do? Hit them over the head? You mean to tell me that after all this time, these guys don’t know that the overall unemployment rate is rigged so that the actual unemployed that have had their unemployment benefits run out, no longer are counted as unemployed? I guess not, because that was all the rage on Friday morning after the announcement.

I sat on a Forex panel on Friday afternoon with some pretty intelligent gentlemen, and the consensus was that the dollar would eventually return to the underlying weak dollar trend because of the financial stresses and awful fundamentals it now sports. But then, none of us have the power to make that happen. If only the media and talking heads had been on that panel with us. Maybe we could have made them understand!

So, as I turn on the screen this morning the euro has fallen back below the 1.20 level, which I really thought we had seen the last of this year! Right now it’s trading 1.1976. It’s the bicentennial year. The move this morning came after a report that showed German factory orders for December fell for the first time in four months. This is a minor setback to the German recovery, but one that will, no doubt, be reversed. It’s probably just a bookkeeping correction to the strong months leading up to December, but it does have the euro on the run this morning. So, in that case it is very disappointing!

Did you hear all the strong banter going on this past weekend between the United States and Iran? I’m telling you this rhetoric is really scaring me. Now, Iran is ignoring the U.N. So, what happens next? If the U.N. imposes sanctions on Iran for failing to stop their nuclear program, Iran could turn around and restrict oil output. Whether that happens or not, the fear of such thing is going to push the price of oil higher. So, get ready for it.

The Central Bank of China’s governor, Zhou, was talking last week about the currency basket that the renminbi is tied to, and divulged that the U.S. dollar made up less than half of the basket of currencies Hmmm. That’s nice to know, now, seven months after the basket was formed! Maybe in another seven months Zhou will tell us what the weightings are of the currencies in the basket!

Well, I think that his statement was a catalyst in getting the renminbi moving versus the dollar again. The level this morning is a new record high versus the dollar since the revaluation last July: 8.0555. That’s now almost 1% higher since the revaluation. I know it’s slow, but it’s moving in the right direction!

While I’m talking about China, I might as well talk about the country that is supplying China with the raw materials they need to feed their growth: Australia. The Australian December international trade deficit more than halved to $1.2 billion from the November deficit of $2.5 billion due to sharply higher exports. Yes…exports to China!

I’ve also noticed that Australia’s inflation rate is nearing the top of the central bank’s inflation target, which tells me that the central bank is nowhere near finished raising rates. I look for Aussie rates to be higher in the second half of this year.

The Canadian dollar/loonie continues to be the belle of the ball with regard to currency performance versus the U.S. dollar.  It was also the talk of the town at the Orlando Money Show. The loonie continues to gain favor with all walks of investors, and I don’t see anything that’s going to change that in the near future.

OK. Did you see the announcement last week by the U.S. Treasury Department regarding this week’s auctions? The U.S. Treasury announced that the market would need to absorb almost $50 billion worth of new supply this week. The supply will take the form of three-year notes, 10-year notes and the 30-year bond. Good luck with that, boys.

Oh, and later this week, we’ll see the December trade deficit. Should really drive home that need for financing!  

Currencies today: A$ .7465, kiwi .6840, C$ .8730, euro 1.1980, sterling 1.7530, Swiss .77, ISK 63.19, rand 6.1315, krone 6.7190, forint 209, zloty 3.1850, koruna 23.66, yen 118.75, baht 39.40, sing 1.6250, China 8.0555, pesos 10.46, dollar index 90.16, silver $9.7650, and gold $570.42

That’s it for today. Congratulations to the Steelers…Super Bowl Champions. I remember when the Rams won and I got to type that for them! Not much in the data cupboard until Friday. You’ve got one week to secure that Valentine’s Day present for your sweetheart. You’ve been warned! Well, I’m home now for the rest of February. Pitchers and catchers report starting next week, so spring is a step closer! Have a great Monday and week!

Chuck Butler
February 6, 2006

The Daily Reckoning