Looking At Data A Strange Way!

Good day. It’s a very special day at the Butler house today. I’ll tell you more about that in the big finish! Friday was not a good day for the currencies, as some demented mentality (DM) took hold after the trade deficit was printed. We’ll see lots of data on both sides of the Atlantic this week, so let’s go to the tape!

First of all, let me get this straight: the trade deficit did widen in April! Yes…it did, it did, I did see it widen, thus putting the deficit on track to set another new record in 2006. But what did the media and markets focus on? Get this baloney; they focused on the fact that it didn’t widen as much as forecast! Excuse me for a minute. I’m going to go scream at the wall! We’ll have to put this down as “looking at data a strange way!”

OK, I’m back now, but still shaking my head at this thinking! The currencies deserved much better! The euro quickly sold off, and then tried to recover. It did by about 3/4 of a cent. The Asian session, last night, carried on with the dollar buying, as that 3/4 has been wiped out. The markets focus is really myopic right now. It is focusing on the higher interest rates scheduled for the United States at the next FOMC meeting, June 29, 2006.

One currency that was not affected by the dollar buying was the belle of the ball, the Canadian dollar/loonie (CAD). The loonie got bid up quickly on Friday after it was announced that the Canadian economy generated 96,700 jobs in May! Wow! The job gains beat the “experts” forecast by almost four times! Canada’s unemployment rate dropped to 6.1%, the lowest level since December 1974. That data was great! But the thing that caught my eye was this: Canada’s average hourly earnings ratcheted up at a 3.8% pace. Talk about an attention-getter for the Bank of Canada! There’s another rate cut in those boys at the Bank of Canada, and this data just made them realize that!

So, the loonie was a pillar of strength on a day when the greenback took liberties with the rest of the currencies.

Overnight, it was reported that China had posted a record $13 billion trade surplus in May! I guess we (U.S. consumers) just can’t get enough, eh? Look at that surplus! That’s $1 billion more than the previous record! This ought to make U.S. lawmakers (especially Schumer and Graham) a little red in the face. In fact, I bet there will be a few veins popping out of the necks of these guys! Oh, and one more thing regarding China: they also reported that inflation in May had accelerated rising 1.4% annually.

That news should raise a red flag to Chinese officials, as once again, I’ll remind them that the a good, proven way to combat inflation is with a strong currency.

OK. In the United States this week, we’ll see the color of the May monthly budget statement, which prints today. Tomorrow, we’ll see the PPI and retail sales for May. The Butler Household Index (BHI) tells me that retail sales will be disappointing in May. We’ll also see CPI on Wednesday and then my favorite piece of data, capacity utilization, along with industrial production on Thursday. However, Thursday’s data will be dominated by the Net Foreign Security Purchases (NFPS), which is expected to be very disappointing. We’ll finish the week with the current account balance for the first quarter.

In Europe this week, we’ll see U.K. PPI data, printing today, and CPI data will be printed on Tuesday. In Germany, we’ll see the latest ZEW confidence report will print tomorrow, and then Eurozone CPI on Thursday. The industrial production data prints on Friday. So, a busy week data wise, eh?

Well, one of those pieces of data just printed! U.K. PPI printed stronger than expected, and kept alive the string of consecutive months of increased manufacturer prices! This brings to light the general concern in the United Kingdom that inflation is once more a problem and rate hikes will have to be made. This has put some wind in the pound sterling’s sails.

Currencies today: A$ .7470, kiwi .6325, C$ .9070, euro 1.2610, sterling 1.8430, Swiss .81, ISK 74.20, rand 6.7350, krone 6.17, forint 212.75, zloty 3.1650, koruna 22.47, yen 114.40, baht 38.40, sing 1.5830, INR 45.91, China 8.0188, pesos 11.38, dollar index 85.94, silver $11.15, and gold $606.60

That’s it for today. OK. I know you’ve all been waiting to hear what’s so special about today at the Butler house. Well, today marks our 30th anniversary. A big one, I’m told! I give my beautiful bride all the credit; she can’t just hit the delete key on me like you can each day! Anyway, 30 years, three beautiful children, and she looks as beautiful today as she did when I met her on the running track 34 years ago! OK, enough sappy stuff!

We have an addition to the trading desk starting today. Kristin Kuchem joins us. Kristin worked for me at the old Mark Twain Bank many years ago, so I welcome her home! Have a great Monday and week!

Chuck Butler
June 12, 2006

The Daily Reckoning