Dollar strength as we head into the weekend

* Best jobless report since 1973
* Housing and PMI today
* Brazil took another hit
* Chinese manufacturing slows

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

Good day. And welcome to Friday morning. First, let’s kick things off with some commentary by Frank Trotter and then we’ll see what’s been happening in the markets.

July 24th, 2015 – Saint Louis, Missouri. An array of electronic items are spread out across the large kitchen island we put in a few years ago. The house is now set, after this addition, to support us when our knees give out and we need to have a level living area. I am setting up to head out Monday for a ten day Odyssey ranging from appearing at the Sprott-Stansberry Vancouver Natural Resources Forum (http://www.naturalresourcesymposium.com/speakers/) in Vancouver, to doing the Four Pass Loop around Maroon Bells in Aspen (http://www.fs.usda.gov/Internet/FSE_DOCUMENTS/stelprd3843736.pdf) and then kicking back with friends in Aspen, Gypsum, and Edwards, Colorado for a few days to recover. There are a couple more days to sign up for the great event in Vancouver so get on a plane, and come on by and see us.

The electronics are a Whitman’s sampler. For the conference I have a video camera, wireless mic, Lavalier mic, and all the accessories to record conversations with some of the speakers at the conference. Take a look at the link I provided above and see who I expect to talking with. We’ll be discussing the resource sector and when it will improve, how Fed policy is expected to change over the next couple years, and of course where currency and gold may travel along the way. Send a few questions you would like to see answered and I’ll try and squeeze them in. For hiking there’s a GoPro, Google Glass, my Garmin GPS, two mobile phones, and a stack of wires batteries and accessories necessary to keep them all going for a 16 hour trek.

Putting my talk together for next week reminds me of the difficult market we’ve seen in the past year. Assets and asset classes we know and love like currencies, metals, and the resource sector in general taking it on the chin. I am optimistic, however, that there are some growing signs of changes coming in each of the markets. We may need to get past the euphoria of a stronger measured economy here in the US with the accompanying planned rate hikes by the Fed – we’ll wait and see there but from this vantage point maybe there’s a good outlook just over the horizon. I’m especially looking at our MarketSafe(r) referenced in the advertisement at the head of this letter. I am placing my order, maybe time to enter yours?

Thanks Frank. Yesterday morning’s Bizzaro World trading pattern surprisingly remained intact after results of the weekly jobless reports and leading indicators came in much better than expected. The news of the day came in the way of jobless claims falling to over a 40 year low of 255k. I did a double take when I saw that headline as well, so that tidbit is not a typo. To be specific, we haven’t seen the report fall to a number this low since November 1973 and has remained below the 300k level since March. The four week moving average, which tends to be less volatile, remained fairly steady at 278.5k. Keep in mind these weekly jobless reports can be quite volatile in the summer since manufacturers, such as the car industry, shut down for re-tooling and other maintenance.

The June leading economic indicators (LEI) came in at 0.6% instead of the 0.3% initial forecasts, but was a bit lower than the previous month’s revision up to 0.8%. Ataman Ozyildirim, an economist at the Conference Board, said the June increase is pointing to continued strength in the economic outlook for the remainder of the year. He went on to say housing permits and the interest rate spread drove the latest gain in the LEI, while labor market indicators such as average workweek and initial claims remained unchanged. Today will round out a week that wasn’t exactly data intensive as the June new home sales figures are expected to show a further increase and the Markit PMI report is looking to remain largely unchanged.

After reading about two data reports that surprised on the upside, especially one that hit a 40+ year best, you would expect the dollar to rise across the board since that puts another feather in the cap for those calling for a September rate hike by the Fed. But, that didn’t happen. The dollar was lower, on aggregate before the data came out and remained lower as I was packing up my things to go home last night. If the markets were taking the dollar higher because they felt the Fed was going to hike rates sooner than later, why didn’t we see a positive pop in the dollar yesterday. In my opinion, it just doesn’t compute and Chris’ Bizzaro World description is all that comes to mind right now as an explanation.

As I mentioned, the aggregate dollar index finished lower on the day but the currency market gave us a mixed bag of results. Most currencies did finish the day in the black, or close to it. The New Zealand dollar was the best performer, which Chris talked about in detail yesterday, while the euro finished just under 1.10 with nearly a 0.50% gain on the day. On the opposite end of the spectrum, the Brazilian real lost about 2% yesterday after the Finance Minister lowered the government’s fiscal target and growth expectations.

The real also got hit after a local ratings firm, Austin Rating, cut the nation’s foreign currency debt to a level considered junk. The big three agencies (S&P, Moodys, and Fitch) still maintain investment grade ratings but some worry they could cut if things don’t improve. The only other currency that had a sizeable loss was the pound sterling after June retail sales unexpectedly fell 0.2% and tempered the rate hike talks. Other than that, all of the other currencies finished in a tight range that didn’t stray too far from the breakeven point on the day.

As I came in this morning, the dollar has marched higher across the board with the South African rand and Australian dollar both down over 1% as the Markit flash manufacturing index for July fell to 48.2 from 49.4. Consequently, the commodity and emerging market currencies are getting hit this morning. Since the Aussie is typically viewed as a liquid proxy for China, its getting the brunt of the punishment, but it didn’t help when S&P said it might lower Australia’s credit rating if improvement to the budget didn’t take place. Adding fuel to the stronger dollar so far this morning, we also saw disappointing German manufacturing growth and slower factory output for the euro-zone as a whole. Gold is down another $12 and is trading at prices that we haven’t seen in over six years, so its been a tough week for metals.

Currencies today 7/24/15. American Style: A$ .7261, kiwi .6561, C$ .7694, euro 1.0934, sterling 1.5475, Swiss $1.0405, . European Style: rand 12.6075, krone 8.2238, SEK 8.6162, forint 284.21, zloty 3.7710, koruna 24.698, RUB 58.42, yen 124.06, sing 1.3747, HKD 7.7513, INR 64.1027, China 6.1169, pesos 16.2756, BRL 3.3370, Dollar Index 97.60, Oil $48.63, 10-year 2.27%, Silver $14.45, Platinum $965.75, Palladium $610.75, and Gold. $1,078.50

Mike Meyer
Vice President
EverBank World Markets
1-800-926-4922
https://www.everbank.com