Tuesday, October 31, 2006


US Dollar Falls To One-Month Low

Reuters reports on the US dollar. "The dollar dropped to a one-month low against major currencies on Tuesday after softer-than-expected October economic data spurred some doubt about U.S. growth potential. While analysts acknowledged that sentiment on the dollar has turned negative in the last week, they said that the key test for the greenback will be on Friday, with the release of the October U.S. payrolls report."

"'The U.S. dollar has been hit by the weaker-than-expected consumer confidence and Chicago PMI data,' said Marc Chandler, head of global currency strategy with Brown Brothers Harriman in New York."

"The dollar index, a measure of how the U.S. currency fares against a basket of six of the most liquid currencies, fell 0.4 percent from Monday to 85.21, the lowest since late September. For the month, the dollar index has tumbled 0.9 percent, the largest monthly decline since May. For the month, the dollar is down around 1 percent against the yen, snapping four months of gains against the Japanese currency."

"The euro rose 0.4 percent on the day to $1.2783 before retracing slightly to $1.2763. The dollar fell 0.7 percent against the yen to about 116.63 yen and then pared losses to 116.92 yen."

From Bloomberg. "New Zealand's dollar rose to a five- week high as investors are attracted to the nation's high bond yields amid signs that the Federal Reserve may start to cut interest rates next year."

"New Zealand's three-year bond yield trades at a 1.93 percentage point premium to the equivalent U.S. maturity, the widest spread in a month. The currency has gained 8.3 percent the past three months, the world's best-performing major currency tracked by Bloomberg."

"'The New Zealand dollar has staged a recovery underpinned by its status as a relatively high-yielding currency,' said Danica Hampton, currency strategist at Bank of New Zealand Ltd. in Wellington."

"Reserve Bank Governor Alan Bollard on Oct. 26 kept the nation's benchmark interest rate unchanged at a record 7.25 percent and said he couldn't rule out a rate rise."

From MarketWatch. "Gold futures fell Tuesday, but closed above the $600 level for a third session in a row to score a monthly gain as traders weighed pressure from North Korea's willingness to return to discussions about its nuclear activities against support from weak U.S. economic data."

"Gold 'still needs to overcome the resistance band between $608-$612 but appears to have made the breakout from its three-month downtrend on the charts,' said James Moore, an analyst at TheBullionDesk.com. 'Resistance above is pegged at $624 with support seen at $598/$592,' he said."

"Gold for December delivery closed down 60 cents at $606.80 an ounce on the New York Mercantile Exchange after tapping a low of $600.50. Other metals declined after posting gains in the previous session, but silver was the exception. It saw its December contract climb 2 cents to close at $12.27 an ounce and it ended the month with a gain of 6.3%."

"January platinum lost $6.7 to close at $1,086.50 an ounce, down 5.5% from a month ago, and December palladium closed down $6.05 at $322.70 an ounce, up 2% for the month."

"With gold now back close to the $600 an-ounce level, 'we need to see whether this is a pullback for consolidation before another up leg, or else a failed break-out,' said William Adams, metals analyst at BaseMetals.com."

The Associated Press. "The Bank of Japan voted unanimously Tuesday to leave its key interest rate unchanged at 0.25 percent, but the central bank chief said rates could be gradually increased if the economy expands as expected."

"As for risks to the Japanese economy, the BOJ cited a possible downward slide in U.S. housing prices, which could drag on growth in the U.S., Japan's biggest export market. The report also said that inflationary pressure may rise in U.S."

What a change in one month! Here is an interview with Jim Rogers:

'It's true that more people are investing in commodities than previously, but against a background of around 70,000 mutual funds looking at stocks and bonds, there are under 50 for commodities. And you may know ten pension funds in the U.K. that invest in commodities, but there are 10,000 others that haven't,' he said.'

'And because of this, the current commodities bull market is still in its infancy. 'It's only time to exit commodities when high stage hysteria takes over,' Rogers said.'
Dollar strength tied to the health of the economy? Whodathunk?!

The old inflation/deflation debate isn't as clear cut as it once was, and a lot of people just don't seem to get it.
Funny watching the hedgies move out of commodity plays and into equities, leaving the weak and the blind to buy the top and then get crushed.
Ambrose Evans Pritchard:

The futures markets have priced in a 77pc chance of a flawless soft-landing for America's obese economy, now living 7pc of GDP beyond its means off foreign creditors. They are counting on moderating oil prices, and – a contradiction? – another year of torrid world growth. Nice if you can get it.

They have not begun to price in the risk of recession, typically entailing a drop in the S&P 500 stock index of 28pc from peak to trough. Evidently, the equity markets assume the Fed can and will rescue them by slashing rates in time, if necessary.

The Mogambo Guru:

John Williams' Shadow Government Statistics has graphed out what he calls the "SGS Alternate Consumer Inflation measure, which reverses the methodological gimmicks of the last 25 years or so, plus an adjustment for the Clinton-Era geometric weighting that is not otherwise accounted for in BLS historic bookkeeping."

A look at the graph clearly shows that inflation, measured the old-fashioned way, bottomed in 1982 (at a little over 2%, which is still very bad), has trended continuously up since then, and is now currently off its peak of about 11% inflation, and is actually "only" about 9% right now.

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