Stomping On Dead Bugs

Good day. Well, a rotten day and overnight session for the currencies, as the talk has shifted back to the United States and how many arrows Big Ben has in his rate hike quiver. Why? I would have thought this discussion was akin to stomping on a dead bug! But – and that’s a big ‘but’ (one that probably needs a red flag on it) – this is what the market is focusing on now.

It’s sort of like my little buddy’s eating habits: He gets fixated on one kind of food, and that’s all he craves. First it was corn on the cob, chicken strips and then pizza. Now he is on to cheeseburgers. It’s crazy! (I would like it if that list had broccoli on it!) Anyway, the market is so focused on the U.S. rate hikes, it doesn’t even notice that the Fed is getting near the end, while other central banks are just winding up the rate-hike music box!

Today, The Bank of Canada will meet, and I expect them to raise another 25 BPS. Recall, last week, when I talked about the loonie, and I said that I expected it to back off the recent highs and when it did, to take advantage of the dip in price? Well, the dip happened, yesterday. The loonie is trading over one cent lower than last week, but if the Bank of Canada comes through with the old one-two today – a rate hike, and a strong hawkish statement – this blue-light special price may not last long! Did I hear someone say, “Attention Loonie shoppers”?

Yesterday, the non-market moving data in the United States showed factory orders slipping by 4.5% in January, and pending home sales falling 1.1% also in January. It’s just more in the line of “mixed reviews” for the U.S. economy. Today, we’ll see the productivity data for the fourth quarter, and it’s expected to fall 0.1%. We’ll also see consumer credit for January rise by $5 billion. Still, it’s nothing to crow about economy wise, but the dollar bulls will do it, and not feel guilty!

Friday will be a jobs jamboree Friday, and as I look ahead, the “experts” are calling for a rise in job creation, for February, of 210,000. Of course, you know me, I really don’t care about how many jobs are created, due to the fact that these numbers are basted and baked every month by the Bureau of Labor Statistics. As I’ve said over and over again through the years, what we should really be focusing on is the average hourly rarnings, which are expected to be weaker, and the average weekly hours, which is expected to remain on pace with the previous month.

OK. So, now we’ve looked at these, what do they tell us? Ahhh, grasshopper, come sit. The average hourly earnings data gives us a snapshot of future wage pressures on inflation. So, if the average hourly earnings falls, it means workers are making less, which means there will be no wage pressures. And the average weekly hours? Ahhh… Again, grasshopper, this shows us just how hard workers have to work to make the average hourly earnings. For February, the average weekly hours is expected to remain at 33.8. So, that means that workers are working the same hours but making less.

This has been going on for some time now. I don’t know how many times I’ve harped on the fact that personal income continues to fall. Personal spending continues to rise, and the net savings has turned negative! What’s going to fuel this so-called robust economy?

OK, enough of that! On to Japan! Well, Prime Minister Koizumi has gotten his way once again, and has jawboned the yen lower versus the dollar. I would think that by now the markets know exactly what he’s up to, yet they still back off, roll over and wait for him to rub their collective bellies whenever he speaks. We’re almost back to 118 in the yen. Last week, things looked so promising as it touched 115, but then along came Koizumi. Thanks, big guy. You really warmed the heats of yen owners! Not!

However, as I’ve said previously, I think Koizumi did this to weaken the yen ahead of the Bank of Japan meeting that has the potential to really light a fire under the yen, pushing it higher. So, only from the mind of Koizumi: if yen starts out much weaker when it begins to strengthen, then the end result won’t be as bad. What a warped mind. I see through his diabolical plan!

With the yen backing off so much, the Chinese renminbi had nowhere to go but down versus the dollar, last night. No biggie, but it does prove out the point I’ve been making since the peg to the dollar was removed on July 21st of last year: The renminbi is allowed to move more on a daily basis versus the Asian currencies in the basket than it can versus the dollar. So, to put pressure on the renminbi to move higher versus the dollar, the Asian currencies must get stronger faster, and that was happening. Every day, the renminbi was getting stronger versus the dollar, but now this – the reverse is happening. It just proves my point!

The Mexican peso has been seeing a lot of selling pressure lately. This has all the makings of carry trades unwinding here, too! One would think that with oil prices remaining high, that the peso would be basking in the sun – not so. And that’s what makes me think of the unwinding of carry trades.

Well, our first day of being in the business of precious metals was interesting. It certainly was busy, and our first day certainly gave those ready to run at the sound of the starter’s gun, a nice dip in prices of both gold and silver!

Currencies today: A$ .7355, kiwi .65, C$ .8740, euro 1.1910, sterling 1.7270, Swiss .7630, ISK 66.75, rand 6.32, krone 6.71, forint 214.66, zloty 3.24, koruna 24.1660, yen 117.90, baht 39.05, sing 1.6325, China 8.0425, pesos 10.74, dollar index 90.61, silver $10.01, and gold $554.10

That’s it for today. Sad news last night about Kirby Puckett, eh? The Hall of Famer passed away at the age of 45. I’ve got a lot to clean up on my desk from yesterday’s craziness, and with our little Christine/Caroline out this week, I’m even further behind than usual on a Tuesday! So, as the Big Boss Frank Trotter says, “Onward and upward!” Have a great Tuesday!

The Daily Reckoning