UK Retail Sales Push Euro-Bloc Higher

The euro (EUR) has gotten another boost this morning from a think tank report in Germany, and what’s called the “euro bloc” of currencies is moving along with the euro this morning. The “euro bloc” consists of: euro, Norway, Sweden, Denmark, Switzerland, the U.K. and we could even throw in the euro-wannabes (Hungary, Poland and the Czech Republic).

German business climate (sentiment), as measured by the think tank IFO, increased for a 7th consecutive month during April. So did the current assessment and expectations components of the survey. As I’ve said quite a few times previously, if only we could just buy Germany and not have to get all of baggage that comes with the euro.

And a sigh of relief comes over me, as I read a story on the Bloomberg this morning that says, “Norway Rejects Cap as Krone Hits Five-Week High.”  Recall me telling you that Norway’s central bank, the Norges Bank, and government were thinking of doing what Switzerland had done, and placing a cap on the gains that the krone could make versus the euro. I was about to throw in the towel, should Norway decide to do that. But they didn’t!

The Norges Bank rejected the proposal to peg the krone to the euro. And once that news was heard by the overnight markets, the krone was bought up by the truckload. The Norges Bank Gov. Oystein Olsen said, “we have other measures.” He’s referring to weakening the krone versus the euro. A rate cut is probably on the way here, but I would rather see a rate cut than a peg.

Yesterday, I told you that the currencies had rallied in the overnight markets, but that rally was losing steam as my fat fingers typed out the Pfennig. The rally came back on the rally tracks later in the morning after U.S. data proved to be disappointing.

For instance, the weekly initial jobless claims — which just two months ago, looked as if it was on its way to better times, posting a low of 361,000 — continued its climb back toward 400,000, posted a 386,000 number of people making initial jobless claims last week.

In addition, existing home sales in March unexpectedly fell, but home prices posted their first gain since November 2010. But you see what happened here, don’t you? The prices rose, thus negating the “bargain basement prices” previously seen by buyers. So they didn’t buy, and thus, home sales fell.

I think what we have here with these two pieces of data, and others that have printed recently, are signs that we’re beginning to move out of the “eye of the storm.” And as I’ve told you many times, while in the “eye of the storm” things began to look better.

But I opined that we would move to the other side of the storm that hit us in 2008, at some time this year. And lo and behold, maybe that move is beginning to take place.

Look, I don’t want to see this happen, so don’t get the idea that I’m proud that I made that call. I’m proud of the call if it made one investor look at his investment portfolio and decide that he needed protection, diversification and help.

I think that the warmer winter experienced by most of the U.S. really padded the economic reports, and now that’s beginning to show the rot on the vine.

And that brings me to gold. If my “eye of  the storm” theory plays out, gold will be once again on the rally tracks — but again, that’s just my opinion. I could be wrong. I was reading a report on The Wall Street Journal site last night, which was talking about gold. But this report was not as upbeat for gold as most of them that I read. So being fair, here are snippets of the story…

The WSJ sat down with Jon Spall, director of precious metals sales at Barclays. When asked how he saw gold performing this year, he responded, “Basically, gold is an anti-government trade. People are buying gold now because it’s an uncertainty hedge. It’s not really about inflation or deflation. What we’re seeing more of this year is the theme that central banks and governments might be getting more in control of events… so people are more relaxed. And that’s why gold has come off a bit this year. People are hoping that’s the end of the problems.”

OK, first of all, he’s right — the “eye of the storm” complacency has led people to remove their “uncertainty hedge.” By the way, I wonder where he heard that term? I’m almost certain I was the first to use that term! But an “anti-government trade”? As long as we’re talking about being scared about what the government is doing, then OK — but no politics, eh?

All right then, back to “eye of the storm.” The British pound sterling (GBP) was the star performer overnight, as the U.K.’s latest print of retail sales beat the forecasts by a wide margin. The eye of the storm isn’t just here in the U.S. The U.K. has more problems than they care to talk about, and they all begin with unsustainable debt. So be careful here, but the pound’s move last night was quite impressive!

I saw my friends over at The 5 Min. Forecast — or The 5, as it’s known — quoted me yesterday. I love it when I see great letters pick up a quote of mine. Earlier this week, we had CNNMoney do just that. The 5 picked up the ball and ran with some thoughts on the loss of individual liberties. You may recall that I began to do that, but got my hands slapped. So if you want more, you’ll have to sign up for The 5. But thanks again to Dave and Addison for thinking that what I had to say was important enough to be in The 5!

The price of oil slipped a bit yesterday, but remains above $100. Did you see the shot fired across Europe’s bow by Iran yesterday?  Iran issued a statement to Europe that “Iran will cut oil exports to ‘entire Europe’ if sanctions are not lifted.”

It looks as if there will be several central bank meetings next week, including our Fed. I have a suggestion for these central banks around the world: Quit holding regularly scheduled meetings to tell us that rates remain unchanged and that you’re doing nothing else to mess things up. The central bank, like the Fed, could announce a couple of days or weeks before the scheduled meeting and just say, “nothing new to talk about, so, let’s cancel this one.”

That would save taxpayer money for sure! It would save the markets from shutting down while Big Ben Bernanke talks, and it would free up everyone’s time.

I saw, this morning, a story headline that said, “Aussie and N.Z. Dollars Set for Weekly Declines on European Debt Crisis.” Don’t you find that to be a strange headline? Why would the Aussie and New Zealand dollars decline on the European debt crisis, when the euro is rallying?

Anyway, the Big Kahuna data print comes next Tuesday for Australia. Until then, I would think the Aussie dollar (AUD) would trade in a tight range. On Tuesday, first-quarter GDP will print, and will be the deciding factor in whether the Reserve Bank of Australia (RBA) cuts rates at their May meeting or not. I say not, so I’ve gone out on a limb on this one. Don’t worry, I picked a big fat one to support me! HA!

The Bank of Japan’s governor, Masaaki Shirakawa, believes that the “tail risks from Europe’s debt crisis are receding.” Again, makes you wonder who approved that headline for Aussie and New Zealand dollars.

Speaking of Japan, the yen (JPY) has weakened a bit this week, but any sustained weakening will have to be seen before I talk about how weak the yen should be again!

In a recent poll done by the CFA Institute, CFA members were asked the question, “How soon do you think easy-money policies of central banks in Europe and the U.S. will lead to inflation?” The CFA members were given four choices: two years, three years, one Year or never.

About 40.94% chose two years, 29.66% chose three years, 19.06% chose one year and, believe or not, 10.34% chose never.

Those 10.34% that chose “never” must be government employees who, under the threat of loss of job, had to vote that way! HA! Because CFA people are smarter than that!

To recap… German IFO rises for a 7th consecutive month, the U.K. retail sales print unexpectedly strong, and the euro-bloc currencies are all rallying this morning.  Gold gained $5 yesterday. U.S. data is beginning to show signs of strain. Could this be the beginning of the move from the “eye of the storm”? Norway decides to not go down the same road as the Swiss National Bank — big relief for Chuck! And the A$ and New Zealand dollars will end the week on a down note.

Chuck Butler
for The Daily Reckoning