More Disappointing U.S. Data…

Good day. Another day of tight range trading in currencies, with the bias towards a weaker dollar on yet more bad fundamentals. I told you yesterday that I believed the Factory Orders would disappoint and they did, along with the Non-Manufacturing ISM… We’ll get to that and more, so let’s go to the tape!

The dollar showed signs of more weakness yesterday vs. the euro, sterling, Aussie and kiwi, while even the yen gained a small amount vs. the dollar. This weakness was a direct result of some additional weak data, making the fundamental reasons to buy dollars an even weaker argument.

First, we had the ISM Non-Manufacturing data, which is simply a fancy title for the Servicing Sector, which had been one of the bright spots for the economy and the dollar. That is until the Non-Manufacturing ISM fell to its lowest level since April 2003 in March! Lowest level in four years! And the report’s components showed weakness in all areas from the employment index to prices paid. There was nothing any dollar bull could take from this report that would give them a warm and fuzzy!

Oh, but that wasn’t the crème-de-la-crème of data yesterday. That was reserved for Factory Orders, which the markets/experts were expecting a rebound from the previous month’s awful negative -5.7% showing. As expectations had Factory Orders rising 1.8%, when in they actually only gained 1% in February. Disappointing…very disappointing!

Now, except for the Weekly Initial Jobless Claims, which stubbornly remain above 300K, we have to wait for tomorrow’s Jobs Jamboree for March.

Here’s what I believe will happen as we go forward with the Bank of England and the pound sterling: The Bank of England (BOE) will raise rates today…and then when their minutes become public, the markets will see that the BOE’s tightening bias remains in tact. This news, along with today’s rate hike (if it happens) will finally push sterling above 2, and probably not stop to breath for some time after that.

Of course, if the BOE doesn’t raise rates today, this all gets shifted to next month! But why put off to next month, what can be done today? I think U.K. exporters had better prepare themselves for a pound sterling above 2!

WOW! Did you see gold shoot up yesterday? And in the face of a resolution to the geopolitical tensions between the United Kingdom and Iran, which helped to bring the price of oil down. Gold would be better suited to follow the path of base metals than oil or geopolitical tensions…base metals have really come back with a vengeance, on the news that China’s demands for the base metals has not waned.

Base metals have really been put in a corner for almost a year now, but judging by copper’s positive moves for six consecutive days, base metals could finally be back on the rally tracks! And that would be great news for not only gold and silver, but Aussie dollars as well.

In fact, the Australian dollar hit a 10-year high overnight of .8214. That level immediately brought about some profit taking, but no worries here. Remember when Aussie dollars finally reached the 80-cent mark, and I said that it wasn’t going to stop there? Well…it hasn’t!

I was half expecting the Reserve Bank of Australia (RBA) to raise rates at their current meeting, but I guess we’ll have to wait until their next meeting on May 1st. Can you imagine the positive move A$’s would have had today, given the base metals strength and a rate hike by the RBA? I can…and it would have been a moon shot! Which is probably why the RBA decided to wait…but, as I said above: Why put off to next month, what can be done today?

Speaking of multi-year highs… the Singapore dollar touched a 9.5 year high last night. Lately, it seems the Sing dollar has had all the weight of Asian currency increases on its tiny shoulders. Would be nice for the others to participate too, eh?

On Monday, I had sent Chris some thoughts for the Pfennig regarding the news last week regarding protectionism measures taken by the Commerce Department. I said then, that the key would be how China reacted. And basically, China’s reaction was muted – until last night, when the Vice Gov. of the Central Bank, Wu, had this to say, “If the U.S. takes protective measures against China, that will not only undermine the Chinese interests, it will also harm the interests of the U.S. and the rest of the world. Trade protectionism is good for no country.”


It looks like we could see a return of risk taking with the end of the geopolitical tensions between Iran and the U.K. That’s a good thing for currencies like Iceland, Mexico, South Africa…

Just when I was ready to go the Big Finish…the Bank of England just announced that they would maintain their current rates. This news has weakened pound sterling…but I believe that to be strictly a knee-jerk reaction. Soon the markets will see what I said above… and if the BOE doesn’t raise rates today, we simply shift my comments all to next month!

OK… Now I can head to the Big Finish!

Currencies today: A$ .8185, kiwi .7230, C$ .8675, euro 1.3375, sterling 1.9710, Swiss .82, ISK 66.90, rand 7.1450, krone 6.0950, SEK 6.9450, forint 183.70, zloty 2.8710, koruna 20.8950, yen 118.75, baht 32.50, sing 1.5140, HKD 7.8180, INR 43.01, China 7.7240, pesos 11.01, dollar index 82.98, Silver $13.61, and Gold… $673.50

That’s it for today. That news from the Bank of England was a bummer! But not as much of a bummer as the opening series for my beloved Cardinals. The 2006 World Champions have begun the year winless in its first three games! UGH! My little buddy, Alex, plays his first baseball game of the year tonight. Should be interesting given that he’s only had two practices leading up to the game! The Big Boss, Frank Trotter, is back in the office this week. Our version of the road warrior is really racking up the miles these days! I don’t know how he does it! Have a great Thursday!

Chuck Butler — April 05, 2007

The Daily Reckoning