Tuesday May 1, 2007 - 09:36:30 GMT
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Black Swan Capital - www.blackswantrading.com
Random negative dollar themes
ď‚§ The euro climbed to the highest level since its 1999 launch against the yen on Tuesday.
7:45a.m. ICSC Chain Store Sales. Previous: -0.3%.
8:55a.m. Redbook Retail Sales Index. Previous: -4.2%.
10:00a.m. March Pending Home Sales. Previous: +0.7%.
10:00a.m. April ISM Manufacturing Business Index. Expected: 51.0. Previous: 50.9.
5:00p.m. ABC/Wash Post Consumer Confidence. Previous: -7.
N/A Auto Sales.
Quotable - Juxtaposed
â€śAs the euro was breaking its December 2004 record (USD 1.364), on its way to 1.37, euro area manufacturing companies polled by economic institutes (Ifo, Insee, Isae) are reporting the strongest ever recorded demand indicator, at least since the beginning of our records (January 1988). Although the rise of the single currency is negative for corporate profits, other things being equal, the message from companies that should be the most sensitive to this factor is loud clear: at this stage, they can afford to live with a strong currency. Two factors are providing convenient cushions: strong order books and comfortable profits.â€ť
Eric Chaney, Morgan Stanley
â€śSumming up, [U.S.] consumer spending is most likely to show a significantly slower pace of growth in the second quarter and core inflation is moderating in the desirable direction. This combination allows the Fed to lower the federal funds rate and revive economic growth. Our current forecast is for a lower federal funds rate at the August 7 FOMC meeting.
Asha Bangalore, Northern Trus
FX Trading â€“ Random negative dollar themes
Is a Fed cut already baked in the cake i.e. reflected in the price of the dollar? We donâ€™t think so. And despite the dollar being â€śoversold,â€ť it seems it could get a lot more oversold because the contrast between U.S. and European growth forecast is a striking, a la the quotable above. Have we finally crossed the Rubicon of global growth with U.S. decoupling? Itâ€™s probably too early to tell. But as we know, investment decisions are driven by perception of realityâ€”not reality itself.
Here are some potential random inter-related themes that weâ€™ve been thinking about which could represent the basis for the dollar going a lot lower, despite its current extremely â€śoversoldâ€™ status:
1) Global growth does decouple from its former leader â€“ the US.
2) The advent of platform companies i.e. those parceling out the grunt work to others, but supposedly keeping the value added stuff, can make all the profit they want, but their growing dominance is symptomatic of capital and foreign direct investment continuing its hegemonic flow to Asia. Thus, helping to explain why U.S. corporate capital investment is missing in action.
3) A falling dollar, which by definition represents a decline in relative U.S. consumer purchasing power, and a corresponding fright out of asset-market wealth i.e. real estate and stocks, leads to a pull-back in consumption leading to real savings; this is part of the process whereby the U.S. weans itself from its massive dependence international capital flow. This is part and parcel to the global re-balancing stuff we hear talked about so often.
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