In This Issue… French election results… Dutc

first_imgIn This Issue… * French election results… * Dutch to attempt to pass budget… * Aussie PPI weakens… * Thoughts on Oil… And, Now, Today’s Pfennig For Your Thoughts! Politics & Uncertainty Push Halt The Currencies… Good day… And a Marvelous Monday to you! WOW! What an experience Saturday Night! I got a ticket (Thanks Rick!) to the Blues game, and watched them win the game and the series to advance to the second round… I had never witnessed the lining up of the players for the traditional handshake at series end… Talk about loud… That crowd was loud from start to finish, and a pretty thrilling end to the game… WOW! Well… we ended Friday with the dollar sliding, and the currencies taking liberties with the green/peachback… The euro traded through the 1.32 figure as we ended the day. However, I thought at that time, on Friday, that the single unit had gone too far, given what was ahead of it over the weekend… You see, France held preliminary elections, and it appears that incumbent, Sarkozy, is in trouble… But the real problems from the weekend elections came from the “anti-euro National Front”… The were defeated, but… gained more votes than any far-right party had ever secured, thus making their platform something that either Sarkozy or his challenger, Hollande, will have to deal with going forward… Hearing the results, just deep sixed the 1.32 figure for the euro… And I have a feeling it won’t stop there once the NY boys and girls arrive at their desks this morning… But that’s not all that’s bugging the euro this morning… In the Netherlands, there are all kinds of hand wringing and sawdust being left on the floor, and the Dutch cabinet is meeting today to discuss passing a budget that meets European Union targets… Going into the meeting, The Freedom Party, withdrew their support for the current government… Welcome to Parliament proceedings and goings on, is all I can say… But here’s what affects the euro… Questions… and the Unknown… and if there’s one thing I’ve taught everyone going back to 1992 when I began writing the Pfennig, is that whenever the markets have questions about leadership, or the markets don’t know what the leadership of a country will be, they punish the currency… So, with the euro running and hiding from the dollar this morning, the rest of the currencies are high-tailing it too… The one currency that is doing well besides the dollar is the Japanese yen… And the one currency that Should be doing well and isn’t… Gold… slips further down the slippery slide, losing $10 this morning. The Chinese renminbi remained steady Eddie last night… But, the Chinese Gov’t has shown a bias toward a slower appreciation if not a weaker renminbi in the past week. I don’t get too concerned about these weekly movements in the renminbi, as I’ve told you over and over again, the real goal of the Chinese is to gain a wider distribution of the currency, and they won’t do that by keeping a lid on the renminbi… Last week I told you how Britain’s pound sterling had been the best performer overnight, and how it had done well recently, but cautioned against getting too lathered up about the pound, given all the debt problems in the U.K. But this weekend, I got to thinking about that thought, and while I don’t disagree with saying it, I do now think that traders could be looking for someplace to go with cash other than the euro… I sent in my article for the publication that I write for… The World Money Analyst, published by the Casey Research people… I told you all about how the letter was a collection of writers / analysts in all fields of investment… You should check it out! Anyway, what I was going to tell you was that the latest piece that I sent in, was about Norway… I talked about how the Norwegian krone was an alternative to the euro, with completely different fundamentals… The thing that keeps the krone from ascending to the top of the currencies is the fact that they don’t have a bond market with the depth and liquidity of the U.S, Japan, U.K. and even the Eurozone… Hedge funds, and large institutions just eat up bonds from countries even the U.S. So, Norway has some work there, but you see they don’t have debt… so why issue bonds? There are Norwegian bonds. In my former life as a foreign bond trader, I bought and sold quite a few NGB’s (Norwegian Gov’t Bonds)… But take a country like China, and their Sov. Wealth Fund… they’re demands for investment size would not be met in Norway… Not yet… So… getting back to the U.K. pound… you can see why, even with all the problems in the U.K. that the pound gets played here, and that’s because of the depth of its bond market. Now, all this doesn’t mean I’m not a fan of Norway any longer… I still believe it’s a great alternative to the euro, and you know me, I’m a sucker for Surplus countries… There’s a lot that can be said for a country that has kept its hands out of the cookie jar, and has kept the Fiscal Books in the black for this long… I mentioned above the fact that investors around the world continue to line up to buy U.S. Treasuries… maybe not as much as in previous years, but still enough buying to push yields even further to record lows… I just don’t get it folks… Down Under… Australia printed its 1st QTR PPI number today, and it was below the forecasts made for wholesale inflation… And that has really “upped the ante” on a rate cut in May… Recall I told you a couple of times last week that the Reserve Bank of Australia (RBA) had hung their rate cut hat on the 1st QTR CPI which will print tomorrow (tonight for us)… Well, with a weaker PPI feeding CPI, the markets are now adjusting their calls for CPI… downward revisions to the forecasts are not taking place… And that, my friends and dear readers, is what’s bugging the Aussie dollar (A$) this morning, and pushing it below $1.03… If the markets are thinking that CPI will be weaker, then the rate cut is in… But here’s where I think most people get confused, and I’ll try to be as clear about this as I can… When I say, or you hear the term, “a rate cut is priced in already, means that the markets have viewed the chances of a rate cut, and made a decision that one will be made at the next Central Bank meeting… In doing so, they go ahead and sell the A$ now… So, when it comes time for the RBA to meet in May, and a rate cut is made, there shouldn’t be much A$ selling in reaction to the actual cut, because, the sales have already been made… thus the rate cut was “priced in”… And then that leads to the RBA press Conference to see if they give any hints about further action… I’m doing the Tom Bodette (sp) and keeping a light on for not rate cut… But this PPI data that printed (-.3%) has really shaken the foundation of my believing that no rate cut would take place… But here’s the thing to think about… What if CPI surprises to the upside of the forecasts of .5%? Anytime you have everyone thinking that something will be weaker, there’s a risk that of a surprise… so, I’ll keep the light on… Well… the Fed’s FOMC will meet tomorrow… and while we’ll hear more confirmation of the keeping rates near zero through 2014, which should be dollar negative, I don’t think we’ll hear any additional thoughts on stimulation for the economy. I also don’t think we’ll hear Big Ben come out and say “read my lips, no further stimulus”… For the Then There Was This today, I’m going to bring you snippets of an article that was in our local paper (The Post Dispatch) from Economics reporter, David Nicklaus… I’ve used David Nicklaus’ thoughts before in the Pfennig… So, he’s talking about how tinkering with Oil could make prices more volatile… So, if you don’t believe this, and agree that the Gov’t should get involved then go ahead and skip to the recap. And if you do read it and want to fire off an email to me telling me how dumb I am… save yourself the time… OK? Here’s David Nicklaus…. “By proposing a crackdown on oil market manipulation, the President scored a few political points last week. If Congress goes along with his $52 Million request to hire more regulators, he may even root out a few bad actors who are making illegal trades. Just don’t expect any of this to make a dime’s worth of difference at the gasoline pump.” “James Williams, an energy economist said that he’s, “all for cracking down on rogue traders, but doesn’t think the bad guys caused oil prices to rise. That can be traced to worries about Iran, supply problems in Nigeria, and other trouble spots around the world.” He went on to say, “I don’t think what they’re (the Gov’t) is thinking about so far will have that great of an impact, certainly nothing that you or I would notice at the pump.” Chuck again… OK… so… if all these regulators and $52 million that we don’t have to spend, isn’t going to make a difference in the price at the pump, then why do it? Another Gov’t dept that will grow and grow, and before you know it they will be taking out Billions each year… There’s precedence here… To Recap… The strong currency rally on Friday, gave way to selling this morning, as the markets react to a couple of things surrounding politics in the Eurozone… The French elections and the Dutch attempting to pass a budget without the support of a minority party… The A$ got whacked this morning when 1st QTR PPI printed very weak, thus giving the markets the idea that CPI will also be weak, thus leading to a rate cut in May, by the RBA. Currencies today … 4/23/12: American Style: A$ 1.0290, kiwi .8110, C$ $1.0025, euro 1.3135, sterling 1.6085, Swiss $1.0930, … European Style: rand 7.8550, krone 5.7475, SEK 6.7410, forint 227.85, zloty 3.1960, koruna 19.0630, RUB 29.51, yen 81.10, sing 1.2490, HKD 7.7610, INR 52.56, China 6.3085, pesos 13.17, BRL 1.8715, Dollar Index 79.50, Oil $103.01, 10-year 1.92%, Silver $31.14, and Gold… $1,631.85 That’s it for today… Well… I saw Chris Gaffney at the hockey game Saturday night, although he didn’t see me! Thanks again to good friend, Rick, for the invite! My beloved Cardinals continue to win 2 of 3, wining all 5 series to start the season… Good for them! I hope I didn’t jinx them! I head to the oncologist today… This will be the start of scans and blood work, etc. to see how I’m doing… although I do get a stay of execution so to speak, as I’ll be on the road starting Thursday this week through May 7th… Then home for 6 days before heading to Las Vegas… So, the doctor won’t be happy that he can’t get me in for the tests, but he’ll get over it! Alex had a great Water Polo tournament… In the championship game, he scored 4 including the game tying goal, as his team came from a deficit of 0-4, to win 6-5… he slept all day yesterday, dead tired for sure! OK… I’ll get out of your hair today… Thanks for reading the Pfennig… now go make this a Marvelous Monday! Chuck Butler President EverBank World Markets 1-800-926-4922 1-314-647-3837

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