US Dollar Reverses Losses After Jobs Report

Well… Friday was quite interesting with the Jobs Jamboree falling flat on its face, and watching the dollar get sold…and then bought again as the day went on… The dollar holds the hammer again this morning, as now the media and market observers are going after Italy… So the offset to the dollar, the euro (EUR), is slip-sliding away… Slip-sliding away, the nearer your destination, the more you’re slip-sliding away…

I guess we should get into the Jobs Jamboree… Let me go into one of my tirades about the numbers, and then move along to the goings on this morning, as I saw some data this past weekend from China that looks interesting… So… Let’s go to the tape on the Jobs Jamboree…

First… The net new jobs created in June was 18,000… And no, I did not miss adding a zero! So, all the talk about a strong jobs number was just that…talk… And it wasn’t worth a dime! OK… The jobs number was just plain awful! 18,000? That’s miserable! But wait! If you order now, you can find out that May’s 54,000 awful showing was revised down to 25,000, and without 131,000 jobs added by the BLS through their Birth/Death Model, the 18,000 would have been a negative job growth number of: -113,000…

So… If I were ever able to ask the BLS this question, this month would be the month to do so… What – given the direction of job growth, and business growth in this country right now – would lead you to believe that 131,000 jobs were added and not accounted for last month? It is a “net” number… I would love to hear their explanation…

The unemployment rate ratcheted up to 9.2%… Hey! That’s going the wrong way! I thought the stimulus was going to get the labor market lathered up… Wrong! I thought QE1 and QE2 were going to do the same thing… Wrong! Now what? Well, I told anyone on the desk that wasn’t on the phone the other day that this deadlock over the debt ceiling is probably really playing badly with businesses, and their budget and planning, for they have no idea if there will be “new taxes,” “no taxes,” less of this, or more of that…

Speaking of the deadlock over the debt ceiling… I just shake my head in disgust over this whole process… In a recent poll, Americans don’t want to see the debt ceiling raised… It’s that simple! Well, no it isn’t, Chuck… And I know that! There are spending cuts that need to be made for future additions or subtractions to the debt, but that doesn’t help what we have now… Basically, the debt ceiling has been raised so many times (74 since 1962, if you’re counting) that it’s just crazy stuff… It’s not like these guys didn’t see the ceiling level coming! So, I don’t think they really believe it’s a Big Deal! I know that the Republicans think that US Treasury Secretary Geithner is just trying to scare people with his talk of default if the debt ceiling doesn’t get raised… And apparently Geithner does believe that will happen… Truth be told, we have more than enough tax revenue, right now, to pay the interest on the Treasuries, and military salaries, and so on for a few months…

There’s about $500 billion ($474 billion) in Treasuries that will come due next month… The Treasury Department will roll these bonds over, take the new proceeds to pay off the old ones plus interest… That’s how it works, folks… That is, as long as there are buyers of the rolled over debt… And then you have to add in the “new debt” that has to be financed… And the sloppy auctions lately don’t make this bond action next month a layup… And this is where the Treasury Secretary should be focusing his “default talk”, because if things get real sloppy – as in, the Chinese don’t show up with their truck to load it up with Treasuries – then there will be a default! And… Once again, we as a country will be living one auction to the next auction…

OK… Let me get to talking about something else, for I’m really getting a rash over this debt and default talk! Oh! That’s right! I was going to talk about the data that printed in China this past week… OK, that sounds good…

CPI inflation in China surged in June, moving past a three-year high… Chinese inflation grew at 6.4% year-on-year, in June… Food costs that rose by 14.4% were the main culprit here… I see where there have already been some forecasters that believe that inflation peaked for China in June. Hmmm… Not sure I know how they came up with that thought, but, I think they should have waited until they saw the domestic demand that was in the trade report!

China’s trade surplus surged to $22.2 billion in June! Exports rose 17.9%, and Imports rose 19.3% (not the 28.4% rise of May, but still strong!) I would have to say that given these two reports the Chinese economy is still cooking with gas… The quarter GDP should print very strong, and keep the ship out to sea for the global growth folks…

OK… There will be lots of stuff going on this week, as Big Ben Bernanke makes his way to testify before lawmakers at the bi-annual report on the economy… Years ago, this was the Humphrey-Hawkins law, but that law expired some time ago, and central bank presidents, Greenspan and now Bernanke continue the process, even though they are not required to do so by law… Of course, they do! These guys love hearing themselves talk and tell everyone how smart they are! Oh, Chuck, you’re just jealous that you don’t get to tell lawmakers your view of the economy!

Tomorrow, the trade deficit prints for May, and then later in the week we’ll see June’s retail sales report, which I’ll tell you right now, based on the BHI (Butler Household Index), June’s retail sales will be very disappointing!

OK… Elsewhere… Friday in Canada, they too, printed a Jobs report… And Canada added 28,000 jobs in June… Hey… Isn’t 28,000 more than 18,000? Why yes it is! The Canadian Business Outlook will print later today… So far, the data reports that point to a rate hike far outnumber the ones that don’t! The Canadian dollar/loonie (CAD), has backed off the $1.04 handle it enjoyed last week… But the loonie is still strong, and should remain that way, as long the price of oil remains above $90…

Speaking of the price of oil… It fell hard on Friday, and has dropped another $1.20 this morning… To go along with most of the commodities that fell on Friday, after the US Jobs Jamboree… You see… Without the US consumer, global growth prospects fade… (I’ve got more on this in the “Then There Was This” portion below…)

On Friday… After the dollar turned its losses around, the best performing currency was the New Zealand dollar/kiwi (NZD)… Kiwi took out its post-float high, and kept surging all day. Reserve Bank of New Zealand (RBNZ) Gov. Bollard, won’t like to see this! Mr. Bollard has long dissed the currency at any chance he gets, so this move higher has got to bug the heck out of him! I guess he was a bit happier in the overnight markets that saw kiwi back off by 1/2% on a weak business confidence report… Kiwi had some “catching up” to do, as it’s kissin’ cousin across the Tasman, Aussie dollar (AUD) has been over parity to the US dollar for a long time now…

The earnings season here in the US begins today… Recall that in April, we were talking about how the strong earnings of US corporations were playing well with the global growth prospects, and that really helped the currencies move higher versus the dollar. Well… Will that happen again? Probably… But… The debt ceiling deadlock, the problems of the peripheral countries of the Eurozone and the problems of the Middle East all weigh heavily on the global growth prospects, so the corporate earnings will have to be “really good” to offset those Albatrosses hanging on the back of the global growth prospects.

Aold old seems to be dragging silver, which is kicking and dragging its feet! The last three days of last week saw gold move higher, and each day’s trading would begin with silver selling off, only to have gold’s rally drag silver higher… Hey! I don’t care how it gets there, just get there! Today might be more of this, as gold is up $1 right now, and silver is down 32-cents… I think it’s important to remember what I told you on Friday about how gold is no longer just a commodity… And so when commodities drop in price, gold is able to weather the selloff, and rally instead…

Then there was this… From the WSJ, this morning…

Government benefits accounted for 20% of Americans’ incomes in 2010, and many of those payments are set to end this year. Economists fear that unless the labor market improves significantly, taking that much money out of the economy could be a major setback for the already shaky economic recovery. Loss of benefits will remove $37 billion from the US economy in 2011, Moody’s Analytics said.

That’s scary stuff there, folks… Either the government cuts the line, or they go further into debt…

To recap… The Jobs Jamboree last Friday was just plain awful, with only 18,000 net new jobs created in June and the unemployment rate ratcheting up to 9.2%. The dollar was sold at first on the news, but then strangely enough, it rallied all Friday afternoon, and then again in the overnight markets last night. China printed strong CPI and trade surplus reports this past weekend, and Big Ben Bernanke gives his thoughts on the economy to lawmakers twice this week.

Chuck Butler
for The Daily Reckoning

The Daily Reckoning