Chuck Butler's
Daily Pfennig
A free, quick-reading daily e-letter on world currencies and economic trends.
Thursday, July 29, 2010
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A free, quick-reading daily e-letter on world currencies and economic trends. |
Thursday, July 29, 2010 |
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EverBank World Markets A Pfennig For Your Thoughts Wednesday, August 10, 2005 ........But first a word from our sponsor....... Not sure which currency is right for you? Visit the Currencies Research Center by going to www.dailypfennig.com and clicking EverBank Home, for handy research tools. Or, give the EverBank World Currency Desk a call at 800.926.4922. .............................................................. * No surprises * US Debt continues to increase * Eurozone growth heats up * China unveils the basket And Now... Today's Pfennig! No surprises Good day... The FOMC performed just as expected and lifted interest rates in the US by another .25%. The only questions regarding this announcement were answered when the 'measured' term was left in the accompanying statement. The US dollar actually dropped after the announcement after rallying a little during the morning hours. Overnight, the dollar lost vs. all of the major currencies with the Euro trading above 1.24 and the yen trading below 111. I was glad to see that maybe all of the Stupid Interest Rate Talk which dominated the markets in the first half of this year may be over. While the US economy does look like it will continue to grow at a good clip, the latest data out of Europe and Japan show that these economies are on a rebound also. With debt levels in the US at record highs, we look for the dollar trend which began again in early July to continue through the rest of the year. If you look at how the dollar performed last year, where US growth was good but the dollar declined pretty sharply; I think we are probably going to see a repeat of that with the dollar testing the lows it set at the end of 2004. Only two pieces of data will be announced in the US today, Mortgage Applications which were already released at -.9% and the Monthly Budget Statement which is expected to show another deficit of 57.0 billion compared with a deficit of 69.2 billion last month. A falling mortgage index is just what the Fed is wanting to see, but the housing bubble is still a major concern. John Kaupisch pointed out to me that foreclosures in the US were up over 10% from the same period last year. This is the tightrope on which Greenspan is walking. He needs to keep raising interest rates to cool the housing market, but if he goes to far the bubble could burst throwing our economy into a deep recession. Yesterday, the National Association of Realtors said US home sales are 'close to a peak' and prices will only rise next year at about half the rate of 2005. I think Big Al would rather see them rise at about a tenth of the blistering pace we have seen in some areas! The reason for our concern with housing is that consumers have turned their houses into ATM machines, feeding our voracious appetite for spending with low interest loans. So-called cash-out refinancings, where individuals borrow more than half their outstanding mortgage, will put an estimated $162 billion in consumer's hands this year, an increase from last year. We continue to worry what will happen when interest rates in the US finally start adjusting upward. Even more concerning is the recent shift away from traditional fixed rate 30 year mortgages to shorter term Adjustable Rate Mortgages and Interest Only Mortgages which will put a much larger burden on homeowners as rates shift up. Good news continues to flow out of the Eurozone with French Industrial Production rising for a second month in June. German economic growth is also accelerating and even the UK economic growth, which reached a 12-year low in the second quarter is rebounding. Growth throughout Europe has eased pressure on central banks to lower interest rates. Bank of England Governor Mervyn King said at a press conference today, "Further ahead, the central projection for growth picks up, and is a little stronger than in May." Most now believe, as we predicted, that the interest rate cut by the BOE last week will be a one time event, and that interest rates in the UK will hold steady for the rest of this year. China announced the make-up of the basket of currencies to which they are now pegging the Renminbi. As expected, the basket currencies reflect China's main trading partners, with the US$, Euro, Yen, and South Korean won being the main components. The other currencies in the basket include the Singapore Dollar, British Pound, Malaysian Ringgit, Australian Dollar, Russian Ruble, Thai Baht, and Canadian Dollar. China just teased the markets with this announcement since they didn't disclose the weightings of the different currencies. Central Bank governor Zhou Xiaochuan said that the weightings will reflect the value of trade done with each country. China's main trading partners last year in descending order of total value of trade were the European Union, US, Japan, Hong Kong, the ASEAN bloc (Singapore and Thailand are in this), South Korea, Taiwan, Russia, Australia, and Canada. The announcement should boost these currencies in relation to the US$ since China will undoubtedly be selling dollars and buying these currencies for reserves. China also announced an expansion of those companies which will be allowed to trade foreign exchange forwards. This is another small step toward an open foreign exchange market with a free trading currency. The central bank has followed last month's 2.1% revaluation by relaxing limits on how much foreign currency companies can hold, increasing the amount of Renminbi people traveling abroad can sell and letting more than 130 domestic and foreign banks trade contracts protecting them against swings in the currency. Again, I look for the currencies which make up the basket to improve vs. the US$ even more than the move by the Chinese Renminbi. Currencies today: A$ .7640, kiwi .6941, C$ .8250, euro 1.2388, sterling 1.7935, Swiss .7957, rand 6.39, krone 6.3726, forint 196.72, zloty 3.256, koruna 23.71, yen 111.06, baht 40.96, sing 1.649, pesos 10.59, China 8.1062, Dollar Index 87.6, and gold... $436.30.. That's it for today... Heard from Chuck up in Canada this morning. He says it is beautiful and that the economy is looking like it is in good shape. I'm sure he will be giving me some tidbits to add to tomorrow's Pfennig, so look for an update on the loonie. The markets will be trading on the budget numbers to be released later this morning, but I don't look for a change in the overall negative feeling for the US$. WIRED WEDNESDAY this morning, and since I'm writing, Christine has brought in the Starbucks. THANKS CHRISTINE!!! Chris Gaffney, CFA Vice President EverBank World Markets 1-800-926-4922 1-314-647-3837 www.everbank.com PFENNIG DISCLOSURE |
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