Key News
• European two-year government bond yields rose above 10-year yields for the first time in more than six years on expectations the European Central Bank will raise interest rates further to keep inflation in check. (Bloomberg)
• Bullion will test this May’s 26-year high of $725 a troy ounce early next year, according to RBC. The firm forecasts a 10.6 per cent increase in total gold demand to 3,924 tonnes; total supply is forecast to climb by 9.2 per cent to 3,980 tonnes. Mine output is expected to peak at 2,898 tonnes in 2008, with a steady production decline projected beyond 2009. (Financial Times)
CHART
• China's trade surplus for October ballooned to a monthly record of $23.83 billion, far surpassing the previous record and posing a challenge for policy makers trying to manage both the domestic economy and its external imbalances. (WSJ)
• Key Reports (WSJ):
8:30a.m. Initial Jobless Claims. For Nov 4 Wk. Consensus: -12K. Previous: +18K.
8:30a.m. Sept Trade Deficit. Consensus: $65.5B. Previous: $69.86B.
8:30a.m. Oct Import Prices. Consensus: -1.5%. Previous: -2.1%.
10:00a.m. Prelim U Of Mich Consumer Sentiment Index. COnsensus: 93.6. Previous: 93.6.
10:00a.m. Sept Wholesale Inventories. Consensus: +0.5%. Previous: +1.1%.
10:00a.m. DJ-BTMU Business Barometer. For Oct 28 Wk. Previous: +0.4%.
4:30p.m. Money Supply.
Quotable
“[China] The trade surplus this year has reached $133.62 billion, or 66% bigger than the $80.37 billion surplus accumulated in the first 10 months of 2005. More money -- about $40 billion so far this year -- is coming into the country in the form of long-term foreign investment. Those inflows helped push China's foreign-exchange reserves, already the world's largest, past the $1 trillion mark this week.”
WSJ
CHART
FX Trading
So far the election doesn’t seem to have had much of an impact on the dollar, but it may. The big mover this morning is the Aussie—getting hit on a weaker than expected jobs report. Could go lower given the relatively high level on positioning we’ve seen in AUD of late—everyone’s favorite high-yielder. But we see it as correction only, at this stage…
We noticed some analysts suggesting that gridlock government might be good thing for the dollar. But there are other views, and one is based on the idea of tight fiscal policy coupled with loose monetary policy (to compensate for the impact of lower government spending juicing the economy) being bad for a currency. In other words, even though almost everyone agrees more fiscal control is a good thing, the currency impact is not directly related—it’s interaction with the monetary backdrop must be considered too.
And it’s not just the idea of tight fiscal and loose monetary that may be bad for the buck going forward—we also have the massive Chinese trade surplus with a giant red target painted on the side for congressional Democrats to shoot at. As you can see in the chart above, $ - yuan is already appreciating against the buck—but this will likely not be good enough. Who knows, maybe we are getting close to some type of big-bang on the yuan. But, a lot of people, including us, have been watching for that for quite a while and political game has changed, so stay tuned.
Jack Crooks, Black Swan Capital Black Swan Subscription-based Service
