Germany to Push Aid to Greece
05/31/11 St. Louis, Missouri – The currencies, led by the resurgent euro (EUR), are stronger across the board versus the dollar, this morning. A German newspaper reported that Germany was considering dropping its push for early restructuring of Greek debt before they would facilitate aid for Greece. This news has lifted a heavy weight from the euro’s shoulders, and the single unit is up to 1.4410… I would have to think that when the boys and girls return from the Hamptons, the US traders would tend to like this news too, and the euro could see a further push higher today.
I would like to think that this Greek debt thing can all be put to bed…but I’m not naïve… And I didn’t just fall off the turnip truck! Their debt problems have become a huge albatross hanging on the neck of the euro… And some people/analysts believe this will eventually be the end of the euro…or that we end up with a “northern euro” and a “southern euro”…
All I’ll say about that is that in 2005 – when the euro suffered “no votes” and the US had an amnesty tax – these same analysts said the euro would collapse… It didn’t… In 2008, when the financial meltdown brought about a huge dollar rally, these same analysts again said the euro would collapse… In fact, one analyst – with whom I traveled on the FX University Tours – told the audiences that not only would the euro collapse, but that the dollar was going to go on a multi-year rally… Neither one happened… And then in January of 2010, when Greece’s problems first appeared on the scene, the euro got sold, and those same analysts called for a collapse of the euro again… It didn’t happen… Of course if they just keep crying wolf, eventually they might be right, but… When will that be? HA!
While I think the euro will suffer periods of deep-rooted selling, it’s like I’ve described to you before… It’s ugly… But what’s uglier? Greece, Ireland and Portugal… Or California, Michigan and Illinois? And in the end, that’s what it’s all about… Who’s uglier?
The New Zealand dollar/kiwi (NZD) has really caught some strong wind in its sails for the past week. In fact, overnight, kiwi hit a post-float high of 0.8254 (right now at 0.8240)… Think about that for a minute, folks… This country has experienced some devastating earthquakes, and just like I said when it all happened, the kiwis are strong people and are likely to rebound quickly, along with the currency… And now, here we are at the end of May, and the currency just hit an all-time high! Remember last week when I told you that the kiwi hadn’t traded at 81-cents since before the financial meltdown…. Well, it’s stronger than that now!
The thing that really kicked kiwi higher overnight was the printing of a very strong rebound of Business Confidence in May…
New Zealand’s kissin’ cousin across the Tasman, Australia, is seeing some mixed trading, with the Aussie dollar (AUD) stronger, but being held back by rumors that Australia will print negative growth for the second quarter… After the floods, cyclones, and other things the Aussies have had to deal with in the past year, one would expect that a battening down of the hatches at home would occur, and GDP would take a temporary hit, which is exactly what I see here…
Yesterday, Canada printed a very strong follow-through for their economy… Following up on the fourth quarter 3.1% growth, first quarter GDP printed at 3.9%… I would think that Bank of Canada Governor Carney, would back off his concern that the strength of the Canadian dollar/loonie (CAD) wasn’t a problem for the economy… Or maybe I’m just “wishin’, and hopin’, and thinkin’ and prayin’” that he would… But for some strange reason, something keeps telling me that Carney isn’t going to use the strong loonie to his advantage. Why would he? He was educated here and at Oxford… Same old teachings to economists that become central bankers… Let’s see… There’s another one on the tip of my tongue… Oh yeah! Big Ben Bernanke!
So… In the end, the loonie has everything going for it right now… A strong economy… Oil over $100 (actually at $102 this morning)… And their other raw materials rising in price. Yes, all the things that scream “rate hikes” … Maybe, eventually, Carney will see the writing on the wall! Until then, the loonie should remain underpinned by the strong data…
OH! And the Bank of Canada (BOC) meets this morning to discuss rates… With Carney’s current frame of mind on the strength of the loonie, I doubt that we’ll see a rate hike today…
And then in Brazil… Where just a couple of weeks ago it looked like the government’s attempts to stem the gains in the real (BRL) were beginning to work… The real goes on a 3-day rally that has the currency back below 1.60…
And as I look at the screens, gold and silver are posting positive numbers, this morning… Silver continues to work its way back in the good graces of metals investors, and gold just carries on despite all the calls for the opposite to happen to the shiny metal… Not from me, of course! But from people that don’t “get it” about gold…
And then here in the US we just finished a week where we saw below-forecast economic growth, and a weaker-than-expected consumer spending number for the first quarter… And foreclosures that are really gearing up again. Then we’ll end this week with a Jobs Jamboree… The downside risks for jobs growth will hang over the markets this week, like the Sword of Damocles… Until we get to Friday, however, when we have some other data that won’t be dollar-friendly…
First, today, we’ll see the color of the March S&P/CaseShiller Home Price Index, which will most likely show further rot on the vine for home prices… And with each disappointing data print, the whispering campaign for further stimulus that began last week (but that Pfennig readers knew about for months) will get a little louder…
And with a quick look to the “bond page” on my Bloomie, I see that 10-year Treasury yields continue to slip (3.10%)… Well with US yields grinding lower, the rate differentials – which I talked about as coming back as a fundamental for currencies – just work against the dollar…
The “other country with a huge debt burden” (Japan) saw Moody’s put their credit rating on review for a possible downgrade… The rating agency, Fitch, had announced the same thing last Friday… I really don’t think that these shots across Japan’s bow by the ratings agencies have much to do with the yen’s ability to remain strong or not… Basically, yen (JPY) is weaker today because of the rise in risk appetite… Which means that dollars and yen get sold…
Then there was this… From USA Today…
Two years have passed since the Great Recession ended, but the US recovery is weak. Previously, deep US recessions were followed by robust rebounds, but that’s not happening this time. A survey by the Pew Charitable Trusts found that 55% of Americans think the US economy is poor. “We’re two years into a recovery, and everybody’s yelling, ‘Are we there yet?’” says Wells Fargo economist Mark Vitner. “You should be putting the recession behind you and talking about where growth is coming from. Instead, we’re still dealing with residual problems from the recession.”
Yes… This is what I’ve been talking about… And I chuckle about the “official end of the recession being June 9, 2009… Yeah, tell that to the over 20% of Americans still looking for jobs!
And I can’t forget to explain something I talked about in Friday’s “First Quarter US GDP Sends the Dollar to the Woodshed”… I was really remiss in not talking about the difference between the US’s GDP and Sweden’s… What I was thinking and then forgot to type, was that the US economy had received trillions of dollars of stimulus, while Sweden had not received any… Which is why I was more impressed with Sweden’s GDP than ours… Hope that helps explain my thought..
To recap… There are reports that the Germans will give Greece aid without requiring a restructuring of the debt first… This news has the euro rallying and dragging all the other currencies along for the rally versus the dollar. Kiwi hit a post-float high overnight, and Aussie dollars remain strong in spite of the rumors of a disappointing quarter for growth. The Bank of Canada meets today, but no rate hike is expected, as Governor Carney is not happy with the loonie strength right now.
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