Wandering around.

* Durable goods rise
* Capital orders fall
* Euro has a decent day
* UK growth continues

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

Good day. And welcome to Tuesday morning. Yesterday brought us a recovery in most of the currencies but metals weren’t able to get the same kind of traction. I’ll dig a little deeper into the markets shortly, but first, here is Frank Trotter with our opening remarks:

July 27th, 2015 – Vancouver, BC. After the usual mix up with United we slid down the edge of the Cascades, over the Orcas Islands and turned inland for an unusual westward landing in Vancouver. Severe thunderstorm warnings flashed into my text list when I turned on my phone but those were for Saint Louis two-thirds of a continent away. Here it is a chamber of commerce day with sunshine and perfect temperatures. With the Canadian dollar fallen about 30% in the past couple years Canada is on sale, and the arrival hall reflected that. Grinding through the line successfully I was met by another text – your bags are still in Denver, see the luggage desk. Oh well, a stop on Robson outfits me for a walk through the park and over to dinner later tonight looking much spiffier than my usual oxfords and pleats.

Tuesday morning as you receive this I’ll be putting the final touches on my presentation at the Sprott-Stansberry Resource Conference here at the Fairmont Vancouver. Right now those resources are all careening downward with no clear pattern. I will be listening carefully to hear what the experts in extraction have to say about near term prospects. Oil and copper and other commodities are hitting recent lows perhaps reflecting a pause in the recovery we want to feel is moving along. If you feel warmly about prospects in the medium term refer to the ad at the beginning of this epistle.

China is certainly providing some entertainment these days. Sunday night in North America, as you know, saw an 8.5% drop in one day. The market is set to open shortly as I write and some analysts are calling for quite a bit more over the next few months. Who knows what the right value is, certainly not me, but connecting the line drawn straight off the market’s rise over the past few years and skipping the past 6 months seems to suggest there’s a little ways down to go. Putting the brakes on, even if the brakes like the Jeep hack are controlled outside the car, is tough.

Thanks Frank. Data here in the US was rather limited as we only had June durable goods and the July Dallas Fed manufacturing report to evaluate. We received some mixed signals in the data as the June headline durable goods number brought about a sizable jump to 3.4%, but at the same time, there was also a downward revision for the May figure to -2.1% from the original release of -1.8%. The caveat, however, is that we had a very large rise (about 66%) in June aircraft orders so the all-encompassing number doesn’t tell the whole story. With that said, keep in mind we saw a very large drop in aircraft orders (over 30%) in May as this component is largely influenced by the major air shows, since buyers tend to make the orders in conjunction with a given show.

Since aircraft orders can skew the report one way or the other, many prefer to use the ex-transportation gauge for a clearer assessment. As a result, we also saw a pick-up in this category with June rising 0.8 but May was revised down to a -0.1%. In a similar report, the June non-defense capital goods order increased 0.9%. This report is generally seen as a barometer for future business spending so its painting a brighter picture going forward, but the shipments gauge actually came in at a loss. The -0.1% June figure and May’s revision down to -0.3% poured water on the positive vibe since orders are a part of GDP calculation and would weigh on second quarter GDP, which is due on Thursday. The Dallas manufacturing report came in better than last month but was still negative.

Overall, the data didn’t do much to move the markets yesterday so it was continued fallout from the meltdown in Chinese stocks, sentiment trading, and uncertainty as to what the Fed will say on Wednesday. I had a tough time finding a specific reason as to what caused the relatively large move lower in the dollar, but the euro was the primary benefactor as it traded into the 1.11 handle and finished the day up 1%. The positive German data helped, but it looked more likely that a short squeeze (reversal of short positions) had a heavy hand in pushing the euro higher.

There was an overarching risk off theme in the financial markets yesterday, but it was interesting to see the lower US dollar when it was all said and done since risk off investors had been finding refuge in the dollar. Perhaps we’re seeing a pullback in the September rate hike expectations as the global growth picture has become increasingly cloudy. The dollar was getting stronger as the rate hike talk for September was getting pretty loud, but some of that seemed to reverse course yesterday. The only currencies that were trading in the red, slightly I might add, when I left the office last night were the Aussie, Brazilian real, and the Mexican peso. At the end of the day, the largest move was concentrated in the euro while most other currencies had marginal movement and the metals finished slightly lower.

As I came in this morning, the dollar continues to wander around but has gained half the ground that it lost yesterday against the euro. The collective currency and those closely linked, such as Danish krone, Swedish krona, and Swiss francs are the only currencies sitting on losses so far this morning. It looks like there was some stabilization in the Chinese stock market as it only suffered a 1.7% loss today. I want to point out that the direction of the currency and the happenings in the stock market aren’t necessarily correlated. I have spoken to quite a few clients who think the currency is getting hit, when that hasn’t been the case.

In fact, the Chinese currency has appreciated today. When Chinese stocks were cooking with gas and saw exponential growth, we didn’t see the currency appreciate precipitously. The same can be said about the flip side as the currency has not seen the type of losses occurring in stocks. Just wanted to throw that out there. The Aussie and New Zealand dollars are top performers so far this morning after commodities have leveled out and evidence that we have more short positions getting closed out ahead of the Fed meeting. Lastly, the pound is keeping its head above water after second quarter GDP continued to rise and marked the 10th consecutive quarter of growth so expect to see the back and forth as to when rates will be moved higher in the UK.

Currencies today 7/28/15. American Style: A$ .7304, kiwi .6670, C$ .7683, euro 1.1024, sterling 1.5579, Swiss $1.0346, . European Style: rand 12.5548, krone 8.1815, SEK 8.5780, forint 280.83, zloty 3.7381, koruna 24.497, RUB 60.17, yen 123.77, sing 1.3670, HKD 7.7506, INR 63.8786, China 6.1154, pesos 16.2323, BRL 3.3509, Dollar Index 96.936, Oil $47.38, 10-year 2.26%, Silver $14.59, Platinum $978.50, Palladium $616.50, and Gold. $1,093.10

Mike Meyer
Vice President
EverBank World Markets