Big moves in the last two weeks. Last week had a lot of economic news, beginning with worse economic data coming from Europe. Various measures suggest that the entire zone is moving toward recession and deflation. Several member states are already in one or both categories. Mario Draghi took one last rate cut at the European Central Bank with everyone believing that quantitative easing of some sort will be the next step. By reducing the interest paid by the ECB to depositors (which moved into negative territory for some deposits earlier in the summer) the value of the Euro relative to the dollar had to decline. This is due to the fact that if you had dollars or Euros and had to put them into a bank account, the dollars will accrue more interest. Thus, you would convert your idle Euros to dollars to take advantage of the better interest rate. This is great news if you are an importer from Europe. If you had your eye on German suppliers, this may be the time to approach them. As an exporter, this means your inventory is now more expensive to those in Europe, and this may affect your sales if you cannot change your price.
The US Nonfarms Payroll number was lower than expected at 142,000 new jobs created last month. While still positive, this is a movement away from the strong average over the course of the year. It can be an outlier, but look to the October number to start moving markets, especially if it is under the expected range. This number is important because it shows the “health” of the US economy. If the private sector is adding jobs, than the economy must be improving. However, the replacement rate is around 180,000. This means the economy is 38,000 jobs short just to take care of new workers coming into the market. Gird your loins for October!
Speaking of October, the ECB will release its banking sector stress test results. If the tests are a joke, expect markets to lose faith in European banks. If the tests are good, and the results are bad, expect an exodus from the sector, and probably the Euro. Nobody is really predicting a good outcome here.
In a shocker, a poll on Scottish independence revealed, for the first time, that people are more likely to vote for independence than to stay within the UK. The results were in the margin of error, but the psychological damage is done. Nobody really thought that independence was going to happen, but markets are reacting to the news by selling pounds, driving the price down. The UK government promised more concessions to the Scots today, but it appears it may be too little too late. September 18th is the actual vote. (A lot of “Braveheart” programming likely in the next ten days.)
The “Weekly Change” covers two weeks.
Other US economic data for this week is here.
Who won the battle last week, between the USD and five currencies? The perspective is strictly from America, so if against the Aussie Dollar, United States importers won, that also means Australian exporters won as well. I am changing the sign convention: negative percentage changes mean that exporters have the advantage while positive numbers show the advantage for importers.
| Currency | Week Ending 9-5-14 | Weeks in a Row | Weekly Change (for two weeks) | YTD Change |
| Australian Dollar (AUD) | Exporters Win! | 0 | -0.3% | -4.99% |
| Canadian Dollar (CAD) | Exporters Win! | 0 | -0.6% | 2.2% |
| Euro (EUR) | Importers Win! | 2 | 2.5% | 6.06% |
| British Pound Sterling (GBP) | Importers Win! | 8 | 1.7% | 1.73% |
| Japanese Yen (JPY) | Importers Win! | 3 | 1.3% | -0.14% |
Thanks,
Damon
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