The ECB Delivers The Goods

Good day. A Happy Friday to one and all! It’s the first weekend of March – Spring Training has begun, The NCAA Basketball Championship will begin soon, and hopefully, warmer weather is on the way!

It sure heated up in the currency markets, yesterday. Yes, the ECB did deliver the goods with the expected 25 BPS rate hike. Then, I tuned in to listen to Trichet deliver the words that would keep the rate-hike skillet on the fire in the Eurozone! As forceful as he could, Trichet said that the ECB hiked rates to provide price stability, the inflation pipeline didn’t look promising, and that interest rates were still “accommodative.” Hey folks, that’s central bank parlance for “rates are too low!”

So, everything that I thought would happen yesterday in this arena came to fruition. I love it when a plan comes together!

The euro did rally on the words from the press conference, but not strongly. Again, this is just as I thought. The dollar bulls will continue to point out the interest rate differential that favors the dollar versus the euro as reason to support the greenback, but once the rate hikes in the United States come to an end (my guess is May) and the ECB is still hard at work raising interest rates, the real meat of the euro’s move versus the dollar should come. That’s my story and I’m sticking to it!

I see where the European Commission has revised their forecast for the Eurozone economic growth this year. The Commission says that the Eurozone economy will grow at the fastest pace since 2000! OK. Growth in the Eurozone hasn’t exactly been anything to write home about, but with the momentum that the Eurozone economy has going for it right now, is about to erase those past poor performances, and send a letter home!

All the currencies, even the kiwi, got in on the rally versus the dollar, yesterday. However, overnight, Japanese Prime Minister Koizumi has thrown a spanner in the works. You can always count on some Japanese official to be a party pooper! Koizumi decided that the yen’s move this week had gone too fast, and shot a warning across the yen’s bow. He decided that he would tell the markets that deflation wasn’t dead in Japan. Thanks, Mr. PM. Thanks a lot! Not!

I guess Koizumi wasn’t privy to the data that was released later that showed inflation rising at the fastest pace in eight years during January! Inflation climbed 0.5% from a year earlier in Japan, and should be enough evidence to the Bank of Japan that deflation is indeed dead, and it’s time to raise interest rates! The Bank of Japan meets next week on March 9, 2006. So, the day is coming fast and knowing how the Japanese like to deal, I would say that Koizumi’s warning last night is a precursor to a rate hike. He wanted to get the yen weaker before the rate announcement. I tell you, I can’t believe the currency manipulating Japan gets away with!

So, we’re sitting/trading a bit lower than last night when I went home. All we really have to deal with today before the “boys” head to the Hamptons, is the University of Michigan consumer confidence report. We’ve already seen the national consumer confidence fall earlier this week, so this report will be anti-climatic.

You know, earlier in the week, we had some data that I’ve been focusing on lately, but let it completely slipped my mind. Personal income and spending for January printed on Wednesday, and it once again showed that consumers in the United States spent more than they made. Personal income was up 0.7%, while personal spending was also up 0.9%. You just don’t see the national media talking about this stuff, but it’s going to come back and bite us in the “rear end” – assuming we continue down this path. I bet you thought I was going to say something bad there. Come on, this is a family newsletter! One you should read to your kids before they board the school bus! Ha!

On March 16th, the day before the all-important St. Patrick’s Day, the Swiss National Bank (SNB) will meet. While their recent GDP wasn’t as strong as I think the SNB would have liked to see it, I think they too will raise interest rates 25 BPS. In the old days of the Bundesbank, we would see this chain reaction by central banks all over Europe following suit. Since we have taken 12 nations out of the game, we’re left with Switzerland, Sweden, Denmark, Norway, and Iceland. So, I’m waiting for the rest of them to announce a rate hike, too!

I read where the European Union and Iran didn’t come to any type of agreement in their negotiations regarding Iran’s nuclear program. This news has caused the price of oil to spike.

And, did you see the price of Silver, yesterday? It topped $10 per ounce for the first time since 1984, knocking on your door – no wait. Anyway, that’s quite a move. Now, if it doubles in price, we’ll be back to my original price! The strike at a silver mine in Mexico that I told you about yesterday, came to an end and that really gave Silver a boost.

Gold is within spittin’ distance of a 25-year high, which is $574. It traded at $570, overnight. I see right now, it has fallen back to $567. No worries, just a better price to buy!

I saw this blurb this morning and almost passed over it, but then it was a true “Arnold” moment, as I read it then, and thought about it later! Thailand’s Central Bank’s holdings of forward contracts fell 3.8% to $5.1 billion, last week. OK. Here’s where it gets interesting. Thailand’s forward contracts are geared to allow Thailand to buy dollars. And the Central Bank has allowed these to fall 3.8% in a week? Is this a sign? Is Thailand sending a message that they aren’t going to take on any more dollar reserves? I don’t know, but it did cause me to stop and think and that’s usually a good thing. Sometimes scary, I know, but it’s usually good!

Goldman Sachs is revising its forecast for the euro. Their new three-month level for the single unit is 1.25. I have to say that when June comes around and the euro is 1.25, I will be busting out all over – all over the meadows and the fields (and you thought I was just a rock and roller!). So, on that note, let’s head to the big finish, and a nice big mocha latte!

Currencies today: A$ .7455, kiwi .6670, C$ .8824, euro 1.2030, sterling 1.7570, Swiss .77, ISK 65.80, rand 6.1350, krone 6.6620, forint 211.44, zloty 3.16, koruna 23.70, yen 116.40, baht 38.75, sing 1.6180, China 8.0367, pesos 10.54, dollar index 89.72, silver $10.27, and gold $567.10

That’s it for today. Next week we’ll see the Bank of Japan meet and the U.S. Trade Deficit for January. I don’t see how those will be dollar friendly! EverBank’s big Announcement will come on Monday. Get set…Get ready! Basketball and flag football games are in my future for this weekend, as my little buddy’s sports run together, and soon, baseball will start. Yikes! Have a great Friday and weekend!

Chuck Butler
March 3, 2006