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Dollar Stays Bid: Take Five

Marc To Market's picture





 

The US dollar extended yesterday's gains and remain bid ahead of the November jobs report.   The deterioration of the economic and political situation in the euro area appears to be the single biggest factor behind the greenback's sharp recovery.   The dollar is little changed against the yen as the market grapples with the implication of the earthquake and tsunami.  

 

Asian equity markets were mostly higher with the MSCI Asia-Pacific Index was up about 0.25% and,. of note, the Shanghai Composite extended this week's recovery, gaining 1.6% to bring the weekly advance to 4.1%.  European bourses are bit heavier.    Spanish and Italian bonds remain under pressures, while Greek bond yields continue to fall as a the bond buy back offer expires today and the market anticipates a successful conclusion.  

 

We share five observations today. 


 

 

1.  The ECB was more dovish than expected.  The ECB staff trimmed its growth forecasts yesterday, but are still above consensus expectations.  News that its decision to leave rates on hold was a consensus decision,. not unanimous, means that the ECB may be closer to cutting the refi rate than appreciated.  At the same time it would seem that it would take a deterioration of the outlook from here to see a rate cut materialize.  Any discussion of a refi rate cut would, almost, by definition, raise questions about the deposit rate, the bottom of the rate corridor.  While we had thought a refi rate cut in late Q1 13was possible, we do not expect the deposit rate, now at zero, would be cut.  Instead the ECB would operate with a narrower corridor.  Today the Bundesbank cut its GDP forecasts, with 2013 growth now estimated at 0.4% down from 1.6%.  Separately, Germany reported a terribly disappointing October industrial output figures.  The 2.6% decline  contrasts with the Bloomberg consensus of a flat report, after yesterday's stronger orders data.  The next downside target for the euro comes in just below $1.29 and then $1.2840.  

 

2.  Italian political anxiety.  A second factor that is weighing on the euro is the machinations of Italian politics.  The center-right PDL, which had been supporting the Monti government withdrew support yesterday, mostly abstaining from the confidence vote over economic reforms.  This has threatened to topple the technocrat government and force early elections.  Although Berlusconi's intent is difficult to decipher, this is likely to prove a short across the bow.  It is symbolic in nature, meant to signal disapproval of Monti's policies more than an attempt to trigger a political crisis.  We note too that on December 17, wealth tax, that Berlusconi opposed, on homes goes into effect.  Italian President Napolitano is meeting with the general secretary of the PDL to sort things out.  On balance, we expect elections in March, which means parliament would be dissolved in about a month's time top prepare.  There is some apprehension that a new PDL-Northern League alliance could bring Berlusconi back to power.  That is not our base case. 

 

3.  UK industrial output data was horrendous and it re-opens the door to new gilt purchases next year.  October industrial output fell 0.8%, whereas the consensus had called for a 0.7% increase and follows the downward revision in the Sept series to -2.1% from -1.7%.  Manufacturing itself collapsed, falling 1.3% not the mere 0.2% decline the consensus had forecast.  In Q3, it had looked as if the real sector data was holding up better than the survey data.  Now, it is the other way around.  The PMI led investors to expected better real sector data.  Adding insult to injury, separately  we note that consumer expectations for inflation in the year ahead ticked up to 3.5% from 3.2%.  While sterling is holding above $1.60, it has broken the uptrend from mid-Nov and we look for a move toward $1.5940-80 near-term. 

 

4.  The Australian dollar remains resilient.  It has withstood the RBA rate cut, softer Q3 GDP details and now a much wider trade deficit.  The A$2.088 bln Oct trade shortfall was nearly twice Sept's A$1.4 bln deficit.  Exports were flat, while imports rose 3%.   It flirted with the $1.05 level yesterday and is consolidating today.  Support is seen near $1.0440 and then $1.04.  In terms of value, we note that by the OECD's measure of PPP, the Australian dollar is the most over-valued in its universe.  

 

5.  The market will look past the US jobs data, which will be skewed by the storm.  There may be an initial knee jerk reaction especially given the risks of a weaker than expected report.  The BLS will make some adjustment.   The employment component of the manufacturing ISM was below 50 for the first time since Dec 09 and while the employment component of the service ISM was still above 50 , it recorded its largest decline since March 2009.  The market will look ahead to next week's FOMC meeting, which is expected to increase the long-term assets being purchased (QE3+) as Operation Twist is completed. 

 

 

 

 


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Fri, 12/07/2012 - 14:58 | Link to Comment Madcow
Madcow's picture

why does anyone expect the deflationary collapse to become less deflationary collapse-y?

clearly, economic activity is grining to a halt across the West.  

and yet, folks are surprised to hear about jobs losses and GDP estimates coming down -  but why??

Fri, 12/07/2012 - 14:03 | Link to Comment magpie
magpie's picture

Simple...DX is backed by the sale of AAPL stock by now.

Fri, 12/07/2012 - 13:19 | Link to Comment ZackAttack3
ZackAttack3's picture

Cant wait for SNAP numbers to come out tonight(conveniently).  How many months till we get to 48 million?  I think3 more months.

Fri, 12/07/2012 - 13:13 | Link to Comment Jack Sheet
Jack Sheet's picture

The author appears to work for a private bank.

Brown Brothers Harriman & Co. (BBH) is an American investment bank and securities firm, founded in 1818. It is the oldest and largest private bank in the United States.
(Wikipedia entry)

Draw your own conclusions.

 

Fri, 12/07/2012 - 13:14 | Link to Comment Jack Sheet
Jack Sheet's picture

I guess the idea of the whole thing is to make (or lose) money on the FOREX. Question is, his or your money?

Fri, 12/07/2012 - 11:36 | Link to Comment SanOvaBeach
SanOvaBeach's picture

Stick some gold coins up your ass.  You'll feel better!

Fri, 12/07/2012 - 10:16 | Link to Comment IrritableBowels
IrritableBowels's picture

RIP Brubeck. LEGEND

Fri, 12/07/2012 - 09:22 | Link to Comment DavosSherman
DavosSherman's picture

Tyler(s): What the fuck has happened to ZeroHedge?????

Seriously.

This piece of shit is right up there with ilene's Price crap, which you or her pulled.

The dollar hasn't remained bid.  It won't remain bid.  The Australlian dollar isn't resiliant.

What the fuck is this crap?  Every fucking dollar has halved, not once but 3 times to gold.

This is fucking economically the most historic period in world history: Every fucking dollar is circling the drain together.  It is the broke bailing out the broke with counterfeit.  Even paper bond kings [Gross] get this.

Seems to me like my favorite blog has picked some real shitheads for fill after the Tylers got burnt out blogging?  For the past 8 or so months I've noticed crap like this on the ZH radar.

Fri, 12/07/2012 - 09:24 | Link to Comment Orly
Orly's picture

Dude, get a real life and go back to your Gold Club.  You've no business here, as you clearly have no clue what you're talking about.

Fri, 12/07/2012 - 09:42 | Link to Comment DavosSherman
DavosSherman's picture

One more thing, the most successful charters are the ones that don't have a myopic macro view.  Ergo your 27 down votes to this comment you made "As a chartist-type person, it just looks like to me that gold is rolling over here in a major fashion.  The price of gold on 01 January 2014 will be the same price as it was on 30 January 2011."

Go read Jesse's charts, he was in Russia when the ruble rolled over.  He's a chartist but he has a macro vision not a myopic macro vision.

Fri, 12/07/2012 - 09:56 | Link to Comment Orly
Orly's picture

Okay, man.  I'll go learn to read a chart.  Meantime, keep counting your coins.

:/

____

And by the way, the 27 down votes means that I have ruffled the feathers of the gold bugs because deep down, they know I'm right.  They just don't want to give it up.

Talk about a myopic world-view!  Jeesch!

Fri, 12/07/2012 - 10:16 | Link to Comment DavosSherman
DavosSherman's picture

Orly. Dude. I hate gold.  I hate the idea of hoarding.  The only reason I'm balls deep is that the alternative, getting run over by Ben S. Bernanke's garbage truck is worse.

Right now I'm watching paint dry.  Once I'm done with that excitement I'll rip your assinine manifesto to shreds.

You got 27 down votes because you're a fucking economic moron.  Not becuase you ruffled feathers.

You should do yourself a favor, beofre Bernanke's wheels run over you, go listen to Egon von Greyers on KWN.  Read Bill Gross, read Dalio too.  Both those guys got to the gold party while they had lampshades to pass around.

Fri, 12/07/2012 - 10:41 | Link to Comment Orly
Orly's picture

I already have a slew of money with Bill Gross and I don't have to "go and listen" to him.

Look, it's simple.  The idea of a collapse in the US way of life is absolute rubbish and you know it (otherwise, you woulnd't waste your time talking to me...).  There has been no increase in the money supply at all.  Check it for yourself.  Where is this inflation going to come from?  Increasing wages?

You go on and watch your paint dry and then tear my asinine argument to shreds.  A fucking moron, am I?  I'll wait for your apology.

Fri, 12/07/2012 - 10:59 | Link to Comment DavosSherman
DavosSherman's picture

Really, what fund are you in with Gross.  You are a fucking moron, no apology.  A clueless economic fucking moron.

I didn't say collapse, it may, it may not.  I did say the dollar will be re-valued.  Without a gold bridge you'll be taken to the woodshed by Bernanke et al.  Read some history on that you fucking assclown.

Fri, 12/07/2012 - 09:30 | Link to Comment DavosSherman
DavosSherman's picture

Gold has doubled not once, not twice but 3 times [really all Fiats have halved].

That is my record.

What's yours?  AAPL? Or Ben Bernanke's counterfeit?

 

Fri, 12/07/2012 - 14:23 | Link to Comment algol_dog
algol_dog's picture

 

Great take on Gold and the state of the world by Ambrose Evans-Pritchard - 

 http://www.gold-eagle.com/editorials_12/greyerz120612.html

 

"I think there’s a view out there among a lot of people that somehow we’ve always had hard currencies based on gold or whatever, and this is a very new thing when central banks came and created fiat currencies. That’s when it all went to pieces, but no, we’ve always had fiat currencies. There has always been an argument going back for millenniums about whether it should be based on commodity or based on fiat. This is an ancient debate that has gone back and forward. Gold has always been valuable but that is not quite the same thing as saying it is the basis of the currency."

"I have followed closely — as a historian — the gold standard, and how it worked in the twentieth century and how it all went wrong. I don’t think the gold standard solves any problems; it is a human instrument. You can make a mess of it, you can run it well. And they ran it very well in the 19th century and made a mess of it in the interwar years and that led to disastrous consequences. So it is a completely human instrument. I don’t really share this view that somehow if you switch to a gold standard system for currencies you would solve problems."

"This is another reason I’m against the gold standard, I think it is good to have free gold that is not controlled by any government, and instead of trying to use it as a foundation for currency which they will try to manipulate. It is better to have it as free, as a store of value and it holds public currencies to account – people can see gold rising against other currencies and that tells you something. It is the final reproach for the other currencies; it is sort of the umpire if you like. It sits there as a store of value and it goes up and down and by its movement it tells you about the other currencies. It holds governments to account. The last thing you want is gold to be concentrated in the hands of the government, who then say we have a gold standard; worst possible thing. You want gold to be completely free."

Fri, 12/07/2012 - 15:21 | Link to Comment DavosSherman
DavosSherman's picture

A new "dawler' is coming.  I fucking guarantee it.  All currencies will be re-issued.  It'll be the usual MO, bring us 1 million, 1 billion, 1 trillion old dollars and pick up 1 new dollar or your coin portion there of.

Whether or not we like a gold standard, or hate a fucking gold standard, is totally irrelivant.  Whether a gold standard doesn't work is also non-applicable.  Whether they impliment one, or don't impliment one, doesn't fucking matter.

At all!

The only thing you have to wrap your fucking mind around is what happened already, will compound (Read: The Fiats are dying and gold is maintaining its value.)  Here is an example of why I don't give a fuck about Ambrose's opinion or the gold standard:

Weimar 1921 gold 1,700 marks per ounce.

Weimar 1923 gold 87,000,000,000,000 (87 trillion) marks per ounce.

And here is what you have to understand to come out the otherside of this without going through the abortion straw is this one simple fact:

December 1923 new currency Rentenmark issued, 1,000,000,000 (1 billion marks) for 1 new Rentenmark.  People took marks to paper recyclers.

Now ask yourself, if you had 1 fucking ounce of gold who many Rentenmarks would you have gotten? $87,000.

And if you listened to the douchebag noise of the time, what would you have? Shit.

And this is why I hate this shit fucking article titled the "dawler" stays bid take 5.  The dawler has been taken to the slaughter house, some people are just too fucking retarted to see it because all the currencies are walking the curved cattle fence looking up the ass at the one in front of it.

It's not the strongest of the species that survive, it is the most observent to change.

 

Fri, 12/07/2012 - 09:52 | Link to Comment Orly
Orly's picture

I am afraid you wouldn't understand but I'll be patient and try to help you understand it anyway.

Your crush on gold is a ruse, it's a farce and it makes no sense, even in the history that you cite about how gold is the ultimate safe-haven currency.

First of all, gold is not a currency and hasn't been for over thirty years.  Not here, not there, not anywhere.  Nowhere in the world is gold an immediate method of exchange.  Sure, you can take your Krugerrand to the coin shop in Paris and kindly ask him to "cash it in" for Pound notes but I could do that with violins and Beanie Babies, too.

Second, this bill of goods you've been sold about the impending collapse of the USD and Armeggedon and Mad Max and all that nonsense is a manly fantasy you're playing out in your own mind.  You will not be a hero "stacking."  In fact, you're about to get creamed.

Third, true currencies trade on a medium of exchange called the foreign exchange, or forex or 4X or FX, whichever you prefer.  This is where gold is priced from.  The DXY index is an index based on the USD vs. the Euro, Pound and Swiss Franc, for the most part.  Gold is priced using the DXY as a reference! So while the USD has been busy out saving the other currencies from immediate collapse, your precious gold has taken advantage and risen widely against those currencies.

I am afraid to tell you that those days are over.  As evidence, you may be wondering why the price of your chunk of metal just plunged eleven dollars in a minute.  That's because the US NFPs came in much stronger than expected, meaning the USD rose against all currencies, including the Japanese yen (thank you very much ;)...) and the DXY rose accordingly.  When that happens, gold gets trounced.

Expect more of these type of moves in the future because they will occur on a daily basis.  Or you can get out of your barbarous relic and come in and join the fun and fray trading real currencies.  If you don't understand it, you can easily find a nice broker that will teach you how to do it.  In the US, I recommend IBFX.  They're straight and honest and an excellent retail broker.  On their site, you can find a plethora of educational materials.

Once you go 4X (real money...), you'll never go back.

:D

Fri, 12/07/2012 - 10:42 | Link to Comment DavosSherman
DavosSherman's picture

"Your crush on gold is a ruse, it's a farce and it makes no sense, even in the history that you cite about how gold is the ultimate safe-haven currency."

No crush.  I hate hoarding, not putting capital to good use.  There are 3 realities you don't get. 1.) Fiat currencies are debt.  Money is loaned into existance.  2.) That means tomorrow more money must be loaned into existance to pay the interest on what was loaned into existance today. 3.) Because that math is impossible, (i.e. you can't have growth like that, it isn't sustainable) every Fiat ever created has reverted to its intrinsic value of 0.  3,800 currencies have bit the dust since time.

"First of all, gold is not a currency and hasn't been for over thirty years.  Not here, not there, not anywhere.  Nowhere in the world is gold an immediate method of exchange.  Sure, you can take your Krugerrand to the coin shop in Paris and kindly ask him to "cash it in" for Pound notes but I could do that with violins and Beanie Babies, too."

Go to a currency window at a bank at an airport, gold is on the list of currencies.  Look back, you can Google my work like a thief in the night the crime syndicate there is a list of currencies that have bit the big one.  Also, read up on Basil III and gold being a Tier I capital asset come 1/12.  Google Zimbabwe gold for food.

"Second, this bill of goods you've been sold about the impending collapse of the USD and Armeggedon and Mad Max and all that nonsense is a manly fantasy you're playing out in your own mind.  You will not be a hero "stacking."  In fact, you're about to get creamed."

I've been blogging about the 5G's for at least as many years.  Gold, Guns, Grub & the Goberment will screw it up trying to fix it.  Government spending breaks out into 3 categories, mandatory spending, interest on debt and discretionary spending.  Mandetory spending is $2.03 trillion.  All of it is social welfare.  Interest is $230 billion.  Together those to add up to revenues.  Discretionary spending is the cost of running the government and fighting 3 wars.  Bernanke is monetizing that genius.  That is what Zimbabwe did.

My math says collapse.  You tell me what is going to happen to me, but your factless, baseless, and clueless.  You're a fucking moron!

"Third, true currencies trade on a medium of exchange called the foreign exchange, or forex or 4X or FX, whichever you prefer.  This is where gold is priced from.  The DXY index is an index based on the USD vs. the Euro, Pound and Swiss Franc, for the most part.  Gold is priced using the DXY as a reference! So while the USD has been busy out saving the other currencies from immediate collapse, your precious gold has taken advantage and risen widely against those currencies."

This is crap.  You need to read Eric Sprott's work on gold mined, gold recyled (scrap) and read on physical demand and CB leases and the LBMA's spot market.  This is crap becuase every fucking currency is down to gold, they're all cirling the drain, their budgets are all as fucked as ours and the ECBs.

"I am afraid to tell you that those days are over.  As evidence, you may be wondering why the price of your chunk of metal just plunged eleven dollars in a minute.  That's because the US NFPs came in much stronger than expected, meaning the USD rose against all currencies, including the Japanese yen (thank you very much ;)...) and the DXY rose accordingly.  When that happens, gold gets trounced."

It's going to take $3,000 an ounce to get gold out of the ground.~Ben Davis, KWN.  Also, the "dawler" has a long way down as do all currencies.  You might want to look at them all to gold and then maybe you'll get it (though you are a clueless fucking moron, maybe you won't.)

"Expect more of these type of moves in the future because they will occur on a daily basis.  Or you can get out of your barbarous relic and come in and join the fun and fray trading real currencies.  If you don't understand it, you can easily find a nice broker that will teach you how to do it.  In the US, I recommend IBFX.  They're straight and honest and an excellent retail broker.  On their site, you can find a plethora of educational materials."

And for the win:  The last guy who called gold a barbourous relic had female vagina's plastered on his wall, he's doctor doom and teaches at NYU the school that hid Greenspan's theisis the one that talked about how to create a housing bubble.

Lastly shit for brains, I've doubled my money not once, not twice but 3 times betting against all the three legeed horses with the four legged horse.  Don't tell me what I can and can't do.  I don't listen to morons.

 

Fri, 12/07/2012 - 10:32 | Link to Comment jomama
jomama's picture

you forgot that /sarc tag...

Fri, 12/07/2012 - 10:37 | Link to Comment Orly
Orly's picture

If you're talking to me, I suggest you read what I said and take into consideration and stop being a little smarty-pants.

Fri, 12/07/2012 - 10:25 | Link to Comment IrritableBowels
IrritableBowels's picture

What are your thoughts on gold's exponential rise vs dollar since 2001?

Fri, 12/07/2012 - 10:36 | Link to Comment Orly
Orly's picture

It is simply a risk-on, commodity-based, easy money trade.  Those days just ended today.  George Bush started the easy money after 911 and it continues until today.

Don't be surprised if the SPX finishes way into the red today.  Why?  because Dr. Bernanke is about to take the punchbowl away.  Forget QE4; it's not going to happen.  The Germans already know this and have sold off all day, even as their people move into bonds.

No more free money to the banks and the Europeans.  Gold plunges back to a more historical mean...meaning ~$646/toz.

:D

Fri, 12/07/2012 - 15:48 | Link to Comment jomama
jomama's picture

don't get my hopes up.

Fri, 12/07/2012 - 08:55 | Link to Comment Orly
Orly's picture

"In terms of value, we note that by the OECD's measure of PPP, the Australian dollar is the most over-valued in its universe."

It is going to be interesting to see when the faltering Australian economy and the pending decline in local real estate begins to weigh on the AUDUSD pair versus its new-found status as a safe-haven currency, vis-a-vis flows out of the Euro.  Currently, only the Australians do not have a ZIRP or NIRP monetary policy in place, so one can imagine that the Aussie will trade in a wide range until either other economies significantly improve or the Australian economy begins to fall apart at the seams.

Mr. Stevens at the RBA is doing a good job managing interest rates so far but he may not have nearly as much latitude in the near future.

:D

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