Waiting On the ECB…

Good day. Well, the Central Banks of the European Union and the U.K. are meeting as I begin today’s Pfennig. I usually get the Bank of England’s decision about the time I head to the Big Finish. The ECB decision usually comes out about the time I’m ready to hit the “send” button, even when I delay sending it, waiting for the ECB.

For the most part, I’m a still nail on the ECB raising rates this morning, and on the fence with the Bank of England, although I think they should wet their powder this morning. These are the two items that will decide the road the currencies travel today…

The euro has bumped up a bit by a strong Retail Sales report this morning. Retail Sales for the Eurozone rose for a sixth consecutive month in September, thus giving the ECB another item to point to when explaining their rate hike later. You know, this is almost as big a deal as it is in Japan…consumers in the Eurozone had gone into hibernation, so it’s nice to see them spending again…

Yesterday, in the United States, the services piece of the ISM report printed, and fell by much more than the experts thought it would. The services piece of the ISM index fell by a larger-than-expected 4.1 points in September. The “experts” thought it would only drop a modest 1 point…but were wrong! The weak headline index was accompanied by a drop in the prices paid index, which fell to its lowest level since August 2003.

The Services piece plays along with the Manufacturing piece, and tells me that the economy is really slowing down, as the effects of 2 years worth of rate hikes filters through the economy. I think tomorrow’s Jobs Jamboree will be disappointing at best, and that too will shine a light on a slowing economy, thus keeping the Fed’s pause on, well…pause!

As I told you yesterday, the Fed Heads, Kohn, and Big Ben would be speaking, and the markets were all goofed up and acting like a teenager when the Beatles would come to their town. Recall that I was looking for credibility from the Fed Heads…and what I got was two Fed Heads not necessarily singing from the same song sheet. While Big Ben was talking about a “substantial correction” in housing that will “lop about a percentage point off economic growth in the 2nd half.” This is central bank parlance for inflation will slow…

Kohn, on the other hand, was like the late Sam Kinnison, kicking and screaming about inflation here, there and everywhere. He also decided to rattle his sword and challenge those that are calling for a Fed rate cut as their next move…I think we’re in for an interesting period of time, if the Fed Heads are going to go saber rattling, and challenging the markets. I don’t think that’s in their constitution, but if they decide they want to get caught up in all that crazy stuff going down in the city…uh-oh!

We’ll hear from two more Fed Heads today… Moskow and Pianalto… I wonder if they will sing from the same song sheet…

The price of oil recovered a bit yesterday, bringing some love to Canadian loonies and Mexican pesos…I had written yesterday that these two were really feeling the heat of oil prices falling. I’m not saying that these two currencies are only tied to oil prices…but they are highly influenced by it.

There’s a rumor out of Japan that some officials at the Bank of Japan expect the government to come out and raise their assessment/outlook for the economy…wouldn’t that be great to see? And why not? Why wouldn’t the government tell it like it is? Don’t be afraid to let their conscience be their guide? Take net capital inflows into Japan…they surged last week. Japanese investors were selling foreign bonds, and buying Japanese bonds (JGBs). This is the second consecutive week of surging net capital inflows to Japan. Now…if it would only start to show in the yen….

The U.S. data cupboard today is pretty bare yielding only the Weekly Initial Jobless Claims. This data has recently shown a trend of increasing jobless claims…

Like I said above, tomorrow is a Jobs Jamboree Friday…and as we have gone through the week, one report after another suggest that the number of jobs created will be less than the 125k originally forecast. Of course, I immediately was all over that 125k number like a cheap suit, saying the actual number would disappoint. Maybe all these other guys, read the Pfennig!

Speaking of reading the Pfennig…when I go on the road I’m always pleased and surprised by the number of people that come up to me and tell me they love the Pfennig. It’s now posted on the Daily Reckoning each day, and Kitco’s website. I just wanted to say that the Pfennig is to share…share it with your family members, friends, neighbors, and enemies!

This just in: The Bank of England did not raise rates, and chose to leave them unchanged. That’s too bad…just when I think they have it together…they disappoint me. Oh well, there’s always next month!

Currencies today: A$ .7475, kiwi .6650, C$ .8885, euro 1.2715, sterling 1.8835, Swiss .80, ISK 68.15, rand 7.81, krone 6.5840, SEK 7.3110, forint 215.60, zloty 3.09, koruna 22.18, yen 117.50, baht 37.60, sing 1.5830, HKD 7.79, INR 45.65, China 7.9040, pesos 11, dollar index 85.80, Silver $10.91, and Gold… $571.50

That’s it for today. Still waiting on the ECB…Trichet needs to remain hawkish! Good luck to my Cardinals who play their second game of the playoffs today…I’ve got my red on! And I found out yesterday that I’ve got a ticket to Saturday’s playoff game, when they return to Busch stadium! YAHOO! Our St. Louis Blues hit the ice for the start of the NHL season tonight…good luck to them! Gotta hit the send button…have a great Thursday!

Chuck Butler
October 5, 2006

The Daily Reckoning