Dollar Gets Weighed Down By $51 Billion Trade Deficit.

May 6, 2015 by

* Most Currencies in rally mode today.
* Kiwi gets sold when wage growth slows.
* German Bunds see their yields rise.
* Oil trades past $61!.

And Now. Today’s A Pfennig For Your Thoughts.

Good day.. And a Wonderful Wednesday to you! I’m starting out much later than usual this morning. I know you don’t want to hear about it, so I won’t go into the stomach problems I had out of the starters blocks this morning. Def Leppard greets me this morning with their song: Love Bites. Don’t know that one? Def Leppard is what I would call a hard rock band that hit it big in the 80’s. And no, they weren’t an electric drums band like a lot of the 80’s bands were! Alex takes his last final today to finish his freshman year at St. Louis University, and we will have the joy of having back with us this summer. I love having him at home, hearing him play his music, until it’s bedtime for dad.

Well, the dollar looks heavy this morning. Like it has the weight of a Trade Deficit that ballooned to $51 Billion on its back. Most currencies are on the rally tracks VS the dollar this morning, the price of Oil has jumped over $61, but Gold and the New Zealand dollar / kiwi are not so lucky this morning, so we might as well start there with kiwi and see where the morning takes us!

New Zealand Unemployment rose .1% to 5.8%, which was a bit larger than the consensus which was 5.5%, but I don’t think that was the real problem, as when you looked under the hood, you could see that employment growth is at 3.2% year on year. The real problem was in the wage growth, which was only up 1.8%, when the consensus thoughts had it at 2%… With this type of slow wage growth, traders are thinking that a rate cut is back on the Reserve Bank of New Zealand’s docket and that June might just be the right timing. So, kiwi is getting smacked around like a bad fighter in a boxing ring. I asked this question last week and no one sent me an answer so I’ll ask it again. Why do they call it a boxing “ring” when it’s square? HA!

The euro is ½-cent higher this morning, which brings it above 1.12, and for once it was a combination both bad U.S. economic data, and good Eurozone economic data. I’ll talk about the U.S. data later, but for this part I’ll focus on the Eurozone economic data, which saw the final PMI Services sector index firm up , which was good because the Club Med countries of Spain, Italy, Portugal, and Greece all were included in the numbers. The European Central Bank’s (ECB) Governing Council will meet today to discuss the Bank of Greece’s loan programs. Yesterday, I told you what Schäuble had to say and apparently his words are being repeated over and over again by the markets, but. they don’t appear to be a threat to the euro today like they were yesterday.

A dear reader sent me a note yesterday asking me what I thought was behind the rise in yields of German bunds (bonds) . I told him that I thought it was uptick in activity in the Eurozone economy, things are looking up, and inflation was inching higher, which would certainly cause a rise in yields. Well, then a couple hours later a currency dealer overseas sent me a quickie note saying that “looking back at both the 10-year bund yield, and the euro) over the past 6 months, shows the close historical correlation between the two. The last time the 10-year Bund was yielding 50 Basis Points, which is where it was at writing, the euro was around 1.18.” So. something to think about, eh?

The Aussie dollar (A$) is back to 80-cents this morning. Aussie Retail Sales for March printed last night, and they were good. not great, just good, rising .3% (consensus was .4%). Tonight, Aussie Employment for April will print, which is a real BIG Deal with regards to which side of the fence it will fall.. Either the side that says the economy is good and not in need of a rate cut, or on the other side. I’m surprised the Traders are rallying the A$ ahead of this report, but I’m not going to argue with them!

The Chinese renminbi / yuan was allowed to appreciate at a rate that was greater than the total weaker moves the past few days, last night. Well, our longtime friend, that still comes to the office a few days a week, Joe Losos, always comes around with the Financial Times, after he reads it of course. So I took it from him, and started looking through it, and right there on page 4, was an article that I hadn’t read about. It said that China has approved: HSBC, Morgan Stanley, and 30 other foreign institutions to invest in its $5.9 Trillion domestic bond market, a big step towards opening its capital markets to foreign investment. China expanded foreign access to its stock market in recent years, but liberalization of the domestic bond market – the world’s third-largest, behind the U.S. and Japan- has proceeded more slowly.

Well if you ask me, it may seem to be “more slowly” to those not following what’s going on. but things in China appear to be happening at a very rapid pace to me that is. And now that China will get their wish to get international investors to store their savings in renminbi, that’s quite impressive if you ask me!

The Norwegian krone and Swedish krona are participating in the currency rally VS the dollar. You know, a few weeks ago, I talked about how one day traders will realize that Norway’s fundamentals are superior to the Eurozone’s, and that the krone was not the euro. And it appeared for a about 10 days that maybe that had occurred, but then the euro began to rally too, and now it appears that these two are back to trading alongside each other.

The original Doobie Brothers were just on the iPod playing my fave song by them: South City Midnight Lady. Geez Louise, I love that song!

OK, back to the stuff you all open up this email to read. Well, the Trade Deficits of both the U.S. and Canada widened in March. The Canadian widening was a surprise, so much so that the March Trade Deficit hit a record level of $3 Billion. there’s something here that plays into the U.S. economy folks. Canadian exports just couldn’t keep pace with the imports, and in fact exports only inched up .4% but saw a 2.2% rise in imports. If Canadian exports are failing to keep up with imports, that tells me that since a large portion of Canadian exports head to the U.S. the U.S. economy is still not picking up. Now, I’m sure the dock worker’s strike in L.A. during this time might have had something to do with this weak number, but not all Canadian exports go to L.A. .

And then along came the U.S. Trade Deficit for March that will make all other Trade Deficits look like chump change. The US. March Trade Deficit jumped to $51.4 Billion from $35.9 Billion in February. that’s a jump from a 5-year low to a 6-year high! The February imports had a -4.4% decline, and the March imports saw a 7.7% jump, but taken together the imports for the two months were only up 3.3%… Sure, those that look at things like this like the cup is half-full, will say the trend is their friend, and those that look at the cup and half-empty, will say that’s hogwash! All I know is that the Trade Deficit here in the U.S. is at a 6-year high. and oh, yeah, our energy independence doesn’t seem to be helping much, eh?

Well, with this being the Wednesday before the Jobs Jamboree Friday, we get the ADP Employment Report, which is supposed to be an indication as to what the Jobs Jamboree hosted by the BLS will have for us. As of right now, the consensus for the Jobs Jamboree is at 225,000 jobs created in April.

Gold is down a couple bucks this morning, after a two-day rally that brought it back to within spittin’ distance of $1,200. Have you heard about the new cryptocurrency that supposedly is backed by Gold? BitGold.. this would be an interesting twist to the Bitcoin craze. Anyway, I’ll believe it when I see it. And for those of you keeping score at home, Gold is now positive for the year.. Hey! It’s something!

To recap. The dollar is heavy today, as the weight of a $51 Billion Trade Deficit is taking its toll on the green/peachback, except against kiwi, rands, and Gold.. New Zealand wages didn’t rise as much as expected, and that brought back the thoughts of a rate cut, which has hurt kiwi overnight. Gold’s two-day rally has come to an end this morning, but there’s always time today for it to turn around! The A$ is back to 80-cents this morning. And the talks with Greece and the Eurozone continue, just a reminder Chuck expects to see an 11th hour deal to kick the can down the road here, and apparently the traders around the world are seeing this too, for the euro has climbed back to 1.12.

For What It’s Worth. I’ve got a special treat today, for I have the opening snippet from Jim Powell’s monthly newsletter, that I’ve been reading for over a decade now. Jim is one of my fave writers, and I think you’ll see why when you read this opening snippet. You can go to his website, and sign up to receive his letter (there’s a cost) by going here: www.powellreport.com

“Engineers often think if a new project is big, complex, and expensive, it can avoid being subject to the troublesome laws of nature that plague lesser efforts.

For example, the designers of the Titanic never thought their mighty ship could sink. Neither could the Tacoma Narrows Bridge fall apart in a heavy wind. Likewise there would never be a radiation leak at the state-of-the-art nuclear plant at Three Mile Island, much less a meltdown at Chernobyl. Inconceivable! Yet, all those projects ended in failure.

Economists are no different from engineers when it comes to ignoring the possibility that their grand schemes might collapse. The high priests of central planning aren’t concerned that creating money out of thin air could possible lead to a currency collapse. As for gold, they think only ignoramuses would want it.

Neither do the financially-enlightened think that anyone except a Neanderthal would be worried about high debts. Fear not, they say, It’s all just numbers on paper. Everything is under control.

I have a mess for our ministers of finance: Not only will their critics be proven right in the end, the lesson will arrive sooner than they think.” – Jim Powell.

Chuck again. Nothing new for Longtime Pfennig Readers but a different way to put it, which Jim is always good at! Jim and I worked together on a white paper about 14 years ago. Crazy, eh? Oh, well, time flies, life goes on, the sun was in my eyes, and I tripped on my shoe lace. All excuses to not stay in contact!

Currencies today 5/6/15. American Style: A$ .8000, kiwi .7495, C$ .8315, euro 1.1225, sterling 1.5205, Swiss 1.0815, . European Style: rand 12.0240, krone 7.4970, SEK 8.2905, forint 271.05, zloty 3.6055, koruna 24.4095, RUB 49.96, yen 119.85, sing 1.3285, HKD 7.7515, INR 63.54, China 6.1156, pesos 15.32, BRL 3.0550, Dollar Index 94.88, Oil $61.90, 10-year 2.19%, Silver $16.44, Platinum $1,141.00, Palladium $790.50, and Gold. $1,189.95

That’s it for today. Alrighty then. Another come from behind win for my beloved Cardinals last night. They have two games left on their 11-game home stand, and it’s been a very good home stand, so far, they are 8-1 on the home stand. I got watch most of the game with a couple of spring training buddies; Duane and Kevin. Robin Meade looks great today. I guess I could say that every day. Alex will be back home for the summer tonight or tomorrow, I don’t recall what he said. He’s training for a ½ Ironman competition in Michigan this summer, and he told me he’s up to running 13 miles now. That’s crazy stuff. I’ve told you before how colleague Chris Gaffney does those full ironman things. It’s my firm belief that a person’s body was not meant to do all those things, especially in the same day! Huge Kudos to him and if Alex goes through with this. Here’s the deal, it’s a fund raiser that he’s doing for his fraternity, that raises money for ALS (remember the ice-bucket thing last summer? That raised funds for ALS) And there’s a web site where people can go a pledge money in Alex’s name. So, when we get with a few weeks of it, I’ll give you that website, and hopefully we can raise a ton of money for ALS!
OK. I’ve gone on long enough today, I need to get out of your hair. So, let’s go out and make this a Wonderful Wednesday!

Chuck Butler
Managing Director
EverBank Global Markets
Editor of A Pfennig For Your Thoughts
1-800-926-4922
https://www.everbank.com