also from fleck today
Finance Ministers Fete a Strong Euro
Away from stocks, this morning saw the biggest news of the last 17 years regarding the foreign-exchange, in my opinion. Bloomberg reported that Dutch Finance Minister Gerrit Zalm, prior to chairing a meeting of the European Union ministers, said that the euro's advance was "not an issue." When asked if worried about the currency trading at $1.30, he replied: "It is good for oil prices." (Note: Finance ministers are usually more political than central bankers, which makes this statement from Zalm more powerful).
His sentiment was echoed by French Finance Minister Nicolas Sarkozy, who said: "A strong currency is better when commodity prices are high," as well as by Spanish Economy Minister Pedro Solbes, who noted that the euro's rise held back inflation in the European community.
This is exactly the point I was trying to make yesterday that the Japanese ought to figure out. A strong currency is good for your country, especially for the Japanese, who are just middlemen in the first place. The Europeans have recognized that this is going to hold down the price of oil and other commodities.
Euro Sheds Its 'Zeuro' Skin
Why do I think this is such an earthshaking development? Because while it has been clear that the dollar was headed lower, and it's relatively straightforward to recite all the dollar negatives, what's not been seen is any country willing to accept the hot potato, i.e., a stronger currency. Now you have the world's biggest, most-owned currency, namely the dollar, which is headed lower, and you have a rather "deep currency" in the euro that's arguably under-owned, and the EU is acknowledging that a higher currency is good.
It is a virtual lock now that the euro is going to take off. The question is, will other central banks start to realize that it's not so bad if their currencies go up and will we see further reduced dollar-buying and/or dollar-selling. This is the functional equivalent of the Plaza Accord, without a meeting in a hotel. (Thanks to a friend who spurred that thought.) It seems to me that for those who don't have big euro positions and would like to build them up, every serious dip in the euro can be bought. It's now only a matter of time before the dollar slide begins to accelerate. (Of course, since I just said that, it will probably trade lower first.)
In the perverse ways of markets, however, this news was either shrugged off or ignored today, as even though the dollar index was down another 0.5%, or 40 basis points, the euro wasn't super-strong. On the other hand, the euro has been up about seven days in a row, so maybe it was just in need of a rest.
Away from the currencies, gold finished up 80 cents and silver finished down 0.5%. Oil ended flat, while fixed income was once again a nonevent. Speaking of fixed income, I wouldn't expect today's ECB news to affect the Treasury market yet. However, somewhere down the road when the dollar slide gathers speed and really gets people upset, then you can expect Treasurys to be impacted. But I think that's quite a ways off. |
