Notes From Underground: IF ALL THE DATA WAS POSITIVE, WHY WAS THE DOLLAR THE ODD MAN OUT?

Last night the RBA, as expected, left rates unchanged at 4.75 percent. The statement released after the meeting was deemed semiHAWKISH as the RBA noted the strength of India and China. The Australian central bank also opined that the massive Australian floods would result in pressure on wages as the rebuilding and repairing would bid away construction workers from the extremely buoyant mining sector. Some analysts had been bearish the AUSSIE DOLLAR based on lost productivity but GOVERNOR STEVENS ended that outlook.

Tuesday brought data releases from all over the globe and for the most part the economic releases showed economic improvement everywhere except for retail sales in Switzerland. The PMI numbers released in Europe and the U.S. showed better growth than expected. Manufacturing in the U.K. was more robust as exports aided it greatly–as Mervyn King believed it would–revealing that the weakened POUND is having the positive effects that the BOE hoped it would. Italian unemployment was better than expected and the overall EU PMI came in higher than estimated.

The U.S. PMI (ISM) number was much stronger than expected and, more importantly, the prices-paid element was far higher than economists had thought. The interesting reaction to this is that the DOLLAR sold off hard as markets viewed all growth as not being equal. The QUESTION WE MUST ASK: WHY IS EUROPEAN GROWTH DEEMED A POSITIVE WHILE STRONGER U.S. GROWTH IS DEEMED CURRENCY NEGATIVE? The BUNDS, GILTS and U.S. TREASURIES were all sold that it can’t be that the world views U.S. DEBT as a greater threat.

This question is what we will have to concentrate on as it has the potential to lead to all types of trades. The LOWER the DOLLAR went, the more the equities rallied … but all the world’s equity markets rallied. For some, the selloff in the OIL will not correlate but this may be a one-day event. However, if there is a glut of OIL then let the FUNDAMENTALS prevail. Food prices continued to rise but there the global supply/demand channel is under severe pressure by global growth, a weak DOLLAR, and a terribly dysfunctional U.S. ETHANOL program. The question still remains: Why not the DOLLAR? BERNANKE, our lonely currency turns its eyes to YOU

The EURO has found some recent support as Egypt took center stage and rumors have been rampant about EU actually coming to some program to allow the PIIGS to borrow money from the EFSF and buy in their distressed DEBT at steeply discounted prices. (Basically a restructuring being cast under the label of REPROFILING.) So far there are only RUMORS about this type of program that is being compared to the famous BRADY BOND program that alleviated the Latin American debt debacle of the 1980’s.

We await a definitive program but the market seems to assigning it some credibility. Also, in a EUROPEAN-WIDE poll, a majority of EU citizens would prefer to have a GERMAN as the ECB chief, as the TEUTONIC respect for HARD MONEY seems to be well supported. Mr.Sarkozy, EN GARDE!

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5 Responses to “Notes From Underground: IF ALL THE DATA WAS POSITIVE, WHY WAS THE DOLLAR THE ODD MAN OUT?”

  1. Arthur Says:

    So, we should forget deflation?

  2. yra Says:

    In what regards should we forget deflation

  3. Arthur Says:

    Well, I believe that deflation is still the main point to check. However, feeling growing “inflation anxiety“, particularly in Asia. Am I wrong?

  4. yra Says:

    Arthur–deflation is still the main threat in Bernanke’s mind but the FED’s monetary policy is creating havoc in the PEGGED currencies that have surrendered their monetary policy to the FED—so the inflation anxiety is real and leading to monetary controls and other efforts to curtail the hot money flows—again Bernanke needs to learn from Milton Friedman—no such thing as a free lunch

  5. Arthur Says:

    OK. Thanks.

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