Chinese Renminbi Appreciates To Record Level
September 12, 2013 · by Chuck Butler
Good day… And a Tub Thumpin’ Thursday to you! A night of different directions for some currencies, Gold has gotten whacked again, the U.S. has begun to deliver weapons to the Syrian rebels, which now puts us on somebody’s you know what list… Because you chose sides! And It’s the birthday of a very special person today… So, Let’s get to the news, and my thoughts / opinions because where else can you get all this for free? HA!
Of course when I say that, I’m reminded that my dad used to tell me that “you get what you pay for”… Well, let’s just consider the Pfennig the “exception to the rule”! Front and Center this morning, we have the dollars of Australia and New Zealand moving in different directions, by wide margin I might add. This is not something that happens very often folks, so I immediately went to the news wires to see what the skinny was here…
It appears that the two things I highlighted yesterday, the Aussie Labor report, and the Reserve Bank of New Zealand (RBNZ) meeting were the culprits… First, the Aussie Labor report printed with job losses of 11,000, instead of gaining 5,000 as forecast. This 16,000 job swing was enough to make all the recent (short-term) buyers of Aussie dollar (A$) realize that maybe, just maybe, cause you never know, it had gone too far, too fast, and it was time to take profits… This downward move in A$’s could very well be healthy for the currency, so don’t get to upset by the move to cheaper levels… In change lies opportunity…
Well bust my buttons! The RBNZ didn’t take their scheduled meeting as an opportunity to stop kiwi in its tracks, after its recent run up in price… I had really thought that RBNZ Gov. Wheeler, who normally doesn’t miss any opportunity to diss kiwi when he gets the chance, would try his best to deep six the currency. But NOOOOOOOOOO! Instead, the RBNZ, after leaving rates unchanged, announced in their statement that they were much more confident that interest rates will rise next year. WOW! They’re finally going to remove the emergency rate cuts from the floods of a couple of years ago? It sure looks like it… So, look for a rate hike in the first Quarter of 2014, folks..
Needless to say that this news put some gale force winds in the sails of kiwi… And rightly so! If interest rates are going up in New Zealand, and remaining on hold in Australia, kiwi gets to enjoy some light shined on it for once over the A$… But let me remind you before you think I’ve dropped A$’s like a bad habit… New Zealand’s Current Account Deficit is HUGE, too HUGE for the tiny 2 island nation…
In other currency news overnight, the euro which touched 1.33 briefly yesterday, but couldn’t hold the figure, is trading around 1.33 on the low side this morning, but still ready and looking for the will of traders to take it higher. The euro should have received a boost this morning from a Bloomberg poll on Investor Confidence in the Eurozone… 40% of the responding investors, analysts and traders polled said that the Eurozone economy is improving. 40% is more than 4 times the number that responded favorably back in May… So, not an overwhelming vote of confidence for the Eurozone, but one that continues to improve…
Well, looky here! Where? Here! Oh come on Chuck, quit playing games! Sorry, but what I was trying to get to was that we should all take a peek at the Chinese renminbi / yuan… For the currency has reached a record level VS the dollar, since the peg was dropped in July 2005… It has done so very quietly, which I’m sure is exactly how the Chinese Gov’t would prefer it done. But no doubt about it, the renminbi / yuan has been allowed to gain based on the renewed optimism that China’s economy is gathering steam once again.
I told you all last week how the major brokerage houses and TBTF Banks had all issued reports that said they were raising their forecasts for Chinese GDP from 7.6% to 7.7%, with one TBTF Bank going so far as to call for 7.9%… Oh, I guess I should explain what TBTF is for those of you new to class… TBTF stands for Too Big To Fail…
Speaking of TBTF… Or so everyone thinks… The U.S. it is now being reported, will run out of its “extraordinary measures” and money on October 18th… Yes, the Bipartisan Policy Center warned that the U.S. could default on its debt as soon as October 18th.. (So, I just said we’ll use 10/18 as our date!) What happens when the U.S. runs out of money and extraordinary measures, whatever the heck those are? Well… bills stop getting paid… Bills like Social Security checks, not that anyone will notice, right? YIKES! And once again the blame finger will get pointed as those attempting to bring change to the traditional rubber stamp of a Debt Ceiling increase. They are hurting the Senior Citizens, you’ll hear them say… Well, let’s see… Oh, I’m going to stop there before I go off on a tangent so deep and long that I might not come back!
The Inconvenient Debt… But Shoot Rudy, if we just divert the focus from the Debt Ceiling, with a war, then we can get than rubber stamp for the raising of the Debt Ceiling… But wait… what’s this? The cost of the wars? Oh brother… My friend, Addison Wiggin, said yesterday in the his Daily Reckoning, that, “The final cost of the Iraq and Afghanistan wars, writes Jeremy Herb for the Hill, will be between $4 and $6 Trillion, and most of those costs have yet to be paid, according to a new study out of Harvard University.” He’s referring to veteran’s medical bills that will have to be paid in the future.”
So… you see, my dear reader, that even when we raise the Debt Ceiling, as we have always done, (94 times since 1944) it won’t be the last time… It will continue to get raised, and the dollar will continue to get debased so that debt servicing can be paid… (debt servicing is interest on loans / bonds) Then one day… a President will come on the TV and say, “Today, we have defaulted on our loans, we will no longer make interest payments on them, and today we start anew” Your dollars are now, a new currency “X”. Your bank accounts have all been automatically converted, and you might notice that you far less than before. That’s the price of default.” I can’t begin to tell you how awful that day might be… And I wonder if someone, somewhere will say, but I thought they taught us that deficits don’t matter?
OK… now I know that was gloom and doom, but remember it’s just a dream… a nightmare, is a better description I guess! You were just having a nightmare when you were reading that, not to worry, the Gov’t has it all under control, go ahead, go back to sleep now, it will be all just fine…
And that brings me back to the euro… why? I hear you asking… Well, it’s how my mind ties things together. Strange, I know, but it’s who I am… So… why the euro? Well, I’m asked all the time about the euro, they ask, if the Eurozone and euro has had all this negativity for the past 3 years, how does the currency remain far more valuable than dollars? And I tell them, it’s not about the euro… It’s about the dollar… What does the markets think about the long term prospects for the dollar? Well, just look at the euro, and it tells you everything… And why do the markets have negative thoughts about the long term prospects of the dollar? The Debt…
I need to talk about something upbeat… Well, I won’t find anything upbeat in the precious metals… Gold is getting whacked again, with the other metals falling in behind. Today will be the last Fed Head speech before the media blackout begins ahead of the FOMC Meeting next week on the 17th & 18th.. Yes, it’s one of those 2-day meetings for the Fed Heads, so get the board games out, for they will want to renew their games of Battleship! The last Fed Head to heap his wisdom on us will be NY Fed President, Dudley… According to Reuters, there’s an 80% chance that tapering will be announced next week, and the amount will be $10 Billion per month… That’s about what I figured it would be, $10 Billion per month, which is why it will take a few months to feel its affects in the economy… And don’t forget, this doesn’t mean that Bond Buying is over with… $75 Billion will be bought this month, $65 Billion next month, and so on, and the increases in the Fed’s Balance Sheet will also decline, but will still be adding to total….
As I told you yesterday, the U.S. data cupboard will have minor prints until tomorrow, when August Retail Sales will print… Today, we’ll see the usual stuff from the Weekly Initial Jobless Claims, along with the Monthly Budget Statement (read Deficit!)… So, Dudley’s speech will be focused on for any clues the markets can trade from, and the news from Syria will determine the direction for the markets today… Right now, it appears to be a mixed bag-o-nuts!
And one more thing before I head to the Big Finish… Bank of England (BOE) Gov. Mark Carney said something this morning that was a great “catch phrase”… So, I wanted to give him credit where credit was due… Carney said that it was important that U.K. economy achieves “escape velocity”… Pretty catchy Mark!
For What It’s Worth… I mentioned this at the top this morning, and something about this story really bothers me… I think we need to read this slowly and let it sink in… and then maybe it will bother you too… From the Washington Post…
“The CIA has begun delivering weapons to rebels in Syria, ending months of delay in lethal aid that had been promised by the Obama administration, according to U.S. officials and Syrian figures. The shipments began streaming into the country over the past two weeks, along with separate deliveries by the State Department of vehicles and other gear — a flow of material that marks a major escalation of the U.S. role in Syria’s civil war.
The arms shipments, which are limited to light weapons and other munitions that can be tracked, began arriving in Syria at a moment of heightened tensions over threats by President Obama to order missile strikes to punish the regime of Bashar al-Assad for his alleged use of chemical weapons in a deadly attack near Damascus last month.
The arms are being delivered as the United States is also shipping new types of nonlethal gear to rebels. That aid includes vehicles, sophisticated communications equipment and advanced combat medical kits.”
Chuck again… Well, I said enough already… Sammy Hagar is singing about it being a Rock and Roll weekend right now, that’s about as upbeat as anything I’ve heard or read about today!
To recap… The Aussie Labor report was very disappointing to the markets, and A$’s got sold, while the RBNZ hinted about rate hikes in 2014, and kiwi got bought! Chinese renminbi /yuan reaches a post peg-drop level VS the dollar overnight all on renewed optimism of the Chinese economy gathering steam. And Fed Head Dudley speaks today, last chance saloon for him to give the markets an indication of what the Fed might do next week.
Currencies today 9/12/13… American Style: A$ .9250, kiwi .8140, C$ .9695, euro 1.3295, sterling 1.5805, Swiss $1.0750, … European Style: rand 9.9275, krone 5.9105, SEK 6.5330, forint 226.50, zloty 3.1705, koruna 19.4050, RUB 32.72, yen 99.40, sing 1.2675, HKD 7.7540, INR 63.52, China 6.1575, pesos 13.10, BRL 2.2740, Dollar Index 81.51, Oil $107.74, 10-year 2.89%, Silver $22.65, Platinum $1,457.20, Palladium $693.68, and Gold…. $1,341.38
That’s it for today… A Great Big Happy Birthday to my good friend, and long time on again, off again colleague, Kathy Glowski! I hear that Kathy, who has moved away from St. Louis, is coming back today to attend a Cardinals baseball game for her birthday present! WOW! She’s planning on stopping by the office, but I’ll miss her, as I have a doctor’s appt this morning… Kathy G. and I go back to the early 80’s when I hired her at Mark Twain Bank… She thinks she’s getting old, but if recall she’s much younger than me! So… Happy Birthday! Cardinals again wait until I’ve gone to bed before scoring any runs, but they won, so Yeah! The first base umpire in last night’s game needs to get his eyes checked, for he called a hit ball foul that was fair by a couple of feet! I’m not a big fan of instant replay in baseball, but this is a case where it would have taken less time to get it right, than to go through all the arguing… OK… I feel very shaky this morning, so I’m contemplating going home… I hope you have a Tub Thumpin’ Thursday!
EverBank World Markets
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