The "Wave" Settles Down

Good day. Well, the action on the ball diamond didn’t warrant any wild cheering or even the “wave,” yesterday. So, we went through a day of dollar strength, albeit range bound. No biggie. And from my view in the cheap seats, the move higher by the euro and other currencies had moved too fast, for comfort. Let’s see the euro hover around the 1.27 level a few days, forming a new base, before we head higher, eh?

So, those lofty levels we saw in the currency roundup yesterday have been reduced by profit taking. What me, worry? Not a chance. Shoot, Rudy, I worried enough when the euro was trading around 1.16, and all the technical people kept writing me telling me the euro was going to trade down to 1.10 before turning around! That’s not a shot at the techies; they called that sell off from the highs!

Yesterday, I talked about Japanese intervention and how we should probably look for it on occasion – since the yen was soaring. I got to thinking about that, last night. Didn’t the G-7 communiqué talk about the Asian currencies getting stronger? Yes, it did. Then it handed the baton to the IMF, so that the IMF could now beat the Japanese when they had the urge to intervene. I think what G-7 was saying was: “No more Mr. Nice Guy,” and, “Stop the Currency Manipulation!”

Which brings me to the government report due this week regarding China. Recall, a couple of months ago, there was all that saber rattling about calling China a “currency manipulator,” but here’s the skinny, as I see it: The United States will back off the name calling, and instead, try to negotiate a stronger renminbi. But, while the United States and the IMF are being tough on China about currency manipulation, Japan isn’t about to step in and intervene in a big way, because that’s currency manipulation, too!

OK. Are we clear on that? Crystal! Hey! Did you see the Canadian jobs report the other day? Yes, it is overshadowed by the U.S. Jobs Jamboree, but it printed nonetheless!

Canadian labor posted another month of very solid job gains with employment growing by 22,000, more than expectations. Job gains in April were concentrated in full-time employment, with manufacturing gaining 24,000! Canadian data continues to point toward another year of strong economic growth, thus fanning the flames of inflation, and keeping the Bank of Canada’s finger on the rate-hike trigger! Yes, labor keeps the Canadian pedal to the metal!

As I said last week, the Canadian loonie is trading at some high altitude – thin air, baby. However, that doesn’t mean it’s ready to slide down the other side of that Rocky Mountain! The loonie should be supported by hot commodities and the rate hikes.

Yesterday, the International Herald Tribune ran a story that sounded as if it came right from the Pfennig! That’s tre’ cool! The story is centered around the fact that the euro is rallying, and this time, its rally is linked to good news!

Recall, I’ve been telling you how the German economic recovery was building steam, and that this rally will be a combination of both good news, and the fact that the euro remains the offset currency to the dollar. So, if the dollar were going to get weaker, the euro would get stronger on the basis of that relationship to the dollar. But now, you’ve got to add to that stronger euro recipe the fact that the Eurozone economy is stronger!

The International Herald Tribune story said, “Evidence is mounting that consumer spending, an engine of growth that has not fully kicked in, is starting to pick up after a long lull. On Monday, an index of the 12-nation euro zone’s retailing industry by NTC Economics reached its highest level since January 2004, when the poll began.”

Speaking of Eurozone economics – today, we’ll see the color of the German industrial production for March. Since the euro was rising in March – but not like it did in April – the chances of a continued winning streak here exist. But then, who knows? Except the Shadow!

Well, tensions are mounting again between the world and Iran. This has allowed gold to gain back most of its losses, yesterday. As I told two different groups of people last week in Atlanta: the instability in the world today gives gold an additional reason to buy it!

No real market moving data today in the United States, so we wait for tomorrow’s printing of the April monthly budget statement, and of course, the FOMC meeting, where it’s all but a done deal that the Fed will raise rates another 25 BPS.

Currencies today: A$ .7675, kiwi .6265, C$ .90, euro 1.27, sterling 1.8575, Swiss .8150, ISK 70.70, rand 6.096, krone 6.15, forint 205.56, zloty 3.0270, koruna 22.296, yen 111.40, baht 37.60, sing 1.57, INR 44.94, China 8.0042, pesos 10.96, dollar index 85.35, silver $13.95, and gold $683.30.

That’s it for today. Tomorrow is National Teacher’s Day, and since my beautiful bride and two oldest children are all teachers, I think it’s my duty to thank them for taking on a very important but underpaid job! I’m very proud of my daughter and son for choosing this profession. I know that I gave my darling daughter, Dawn, kudos for being named a “shining star” for her teaching job, but thought it good to say it again! So, thank a teacher tomorrow! Have a great Tuesday!

Chuck Butler
May 9, 2008

The Daily Reckoning