First with a hat tip to RF for e-mailing the JOKE of the DAY:
Overheard in the Athens Airport:
Greek Immigration Official:Nationality?
Greek Immigration Official: Occupation?
Tourist: No. Just On Holiday
During the last 24 hours the markets digested the interest rate decisions from FIVE CENTRAL BANKS. The RBNZ, ECB, BANK of CANADA and the BANK of ENGLAND held all monetary policy steady, while the Brazilian Central Bank lowered its lending rate by 75 basis points to 9.75%. The rate cut by the Brazilians was larger than expected but on a day the U.S. DOLLAR was under pressure, the BRAZILIAN REAL held up very well. Brazil has been lowering its rate in an effort to stem the inflow of hot money as Brazilian President Dilma Rousseff has taken an aggressive position on what she perceives an overly strong currency.
The RBNZ and the BOC also expressed concerns on the negative economic impact from having a very strong currency as both the KIWI and LOONIE are deemed to be strong currencies because of solid underlying fundamentals. In a world where the three largest central banks are all in liquidity expansion mode, responsible CENTRAL BANKS are deemed to be havens and stores of value. Japanese investors have long had an affinity for the KIWI and recent actions by the BOJ/MOF have forced Mrs.Watanabe to seek investments outside of Japan. How long will the inflows of hot money be tolerated in a world of low global economic growth?
This question will first be answered by the AUSSIES as they begin to deal with the flat AUSSIE 2/10 curve. The BOE and the ECB had nothing to say about currency values. Mervyn King was subdued but the ECB’s Mario Draghi was firing at the Germans as he was very unhappy about the leaked letter from Bundesbank President Weidmann earlier in the week. Draghi was quick to point out that more than 400 German Banks took up the offerings from the February 29 LTRO, thus Germany was a very great beneficiary of ECB monetary policy. Also, President Draghi let it be known that the ECB could move to LOWER COLLATERAL STANDARDS FURTHER IF THE NEED WERE TO ARISE.
This is the beginning of a battle between the Germans and the PERIPHERIES that will simmer until after the FRENCH elections. As politics move from France to Germany, Chancellor Merkel will be feeling the heat from the German establishment. And remember, the Federal Constitutional Court has staked out a very conservative position on ECB bailouts. While some pundits still maintain that the ECB has a single mandate–inflation–Draghi has evidently taken Bernanke as his mentor and become a “DUALIST.” Start the presses because it is full speed ahead. The Germans have awoken to the fact that they are Europe’s creditors so there will be EUROBONDS through the backdoor.
***Ah, it’s unemployment FRIDAY so let us prepare. First, at 6:00 a.m. CST the Canadians report and as usual it is important to watch the Canadian numbers as an indication of U.S. manufacturing growth. The Canadian jobs market is expected to increase by 14,000 and the rate to remain at 7.6%. Last month’s number was disappointing on the whole, but the manufacturing number was better than expected and showed that AUTO production was beginning up in Ontario. The Canadian data was confirmed by the recent robustness in the U.S. auto sector so look for further confirmation in the manufacturing jobs number.
The U.S. data arrives at 7:30 a.m. CST and consensus is looking for a gain of 225,000 nonfarm payrolls and average hourly earnings to be up 0.2%. With yesterday’s UNIT LABOR COST number surprising to the upside, there might be a bigger increase here, which could be detrimental to BONDS as higher labor costs become a problem. However, from MY PERSPECTIVE, THE UNEMPLOYMENT RATE BEGINS TO TAKE ON ADDED SIGNIFICANCE IF THE LABOR PICTURE IS TO IMPROVE. If wages are rising and jobs becoming available then PEOPLE SHOULD BEGIN RETURNING TO THE JOBS MARKET, CAUSING THE UNEMPLOYMENT RATE TO INCREASE.
In MY MIND THE IDEAL NUMBER FOR THE STOCK MARKET WOULD BE A NUMBER WITH A 300,000+ HANDLE AND AN INCREASING UNEMPLOYMENT RATE, WHICH WOULD JUSTIFY THE FED JANUARY 25 FOMC STATEMENT AND ITS EXTENSION OF ZIRP TO MID-2014. Some people I respect believe that the NFP is paramount but I would argue that FED voters like Bernanke, Yellen, and, of course, Williams are much more concerned about the UNEMPLOYMENT RATE. A HIGHER RATE WITH PEOPLE RETURNING TO THE JOBS MARKET WOULD HELP KEEP WAGE INCREASES UNDER CONTROL. FOR THE LAST THREE YEARS THE DRUMBEAT OF U6 as the real unemployment metric has been the drumbeat of nattering nabobs of negativity. Now its time that the theory is tested.
(NOTE: Whatever you are doing, go out and see the most beautiful FULL MOON I HAVE VIEWED IN MANY MOONS.)