Another Commodity Stock becomes a Standard Bearer

So just a few short weeks after Exxon Mobile (XOM) took the top slot away from General Electric (GE), CVRD, the Brazilian iron company, became the largest company in Latin America by market cap.

From the FT($$),

CVRD, the world's largest iron ore producer, has surpassed America Movil, the Mexican cellular telephone company, to become Latin America's most valuable listed company.

The company's market capitalisation this week stood at $37.5bn, ahead of America Movil with $34.9bn, according to a ranking published this week by Economática, a São Paulo-based financial consultancy.

Just pointing out an obvious trend but it never hurts to log the landmark days.

Japan has Diversification Plans Too

Bloomberg:

The dollar fell to a nine-week low against the euro after Japanese Prime Minister Junichiro Koizumi said today his country ``in general'' needs to consider diversifying its foreign currency reserves, the world's largest.
Koizumi said in response to a question at parliament ``it's necessary to diversify the investment destinations'' of reserves while ``considering what's profitable and what's stable.'' The dollar pared losses after a finance ministry official said Japan has no plan to shift its $820.5 billion of reserves, comments later echoed by Finance Minister Sadakazu Tanigaki.
``The market will believe Koizumi,'' said Steve Barrow, a currency strategist in London at Bear Stearns Cos. ``This is an issue that's not going to go away'' in the foreign-exchange market. ``That's going to undermine the dollar.''

Yen is still 104.2 but that statement is big news. The Euro hit 134.56 after the news.

The FT adds this:

Elsewhere is Asia, the South Korean won jumped Won13 against the dollar to a seven-year high of Won989.2 as Korea's consumer expectations index surged to its highest level since September 2002. This prompted Seoul to spend an estimated $2bn on intervening to buy dollar and send the won spinning back to Won1,000.2.
The New Zealand dollar rallied to a fresh 22-year high of $0.7449 against the greenback as the Reserve Bank hiked New Zealand interest rates by 25 basis points to 6.75 per cent, surprising the 50 per cent of the market that had been expecting rates to be held.

Inflation Fears and a Dollar Solution

This AM I wrote that the Fed " is worried that commodity inflation (PPI) could eventually move the CPI." And this afternoon the beige book comes along. The FT sums up the report like this:

US manufacturers are finding it easier to pass on higher energy and other raw material costs to their customers, and companies are finding it harder to hire skilled workers, a Federal Reserve report said on Wednesday.

That is why the bond selling took off again in the afternoon.

Another interesting thought comes from Brad Setser:

Credit should be given where credit is due: one of the predictions of Dooley, Garber and Folkerts-Landau was that Latin America would join Asia in de facto pegging to the dollar. No Latin country has followed the example of Malaysia and China. But many now are intervening heavily to resist pressure on their currencies to appreciate. Countries like Brazil and Argentina, though, still have quite substantial external debts; they are a long ways from joining emerging Asia and becoming true net creditors to the world. But they equally clearly now prefer keeping their currencies a bit undervalued and building up reserves -- rather the opposite of the strategy Brazil pursued in the mid-90s, and Argentina pursued until the end of 2001. Latin America on its own, though, cannot come close to generating the flows required to sustain the enormous expected US current account deficit.

Every day around noon the headline "Brazilian central bank buys dollars" (I'm paraphrasing) hits the Dow Jones wire. As Brad says the Latin American economies are not big enough to sustain the U.S. current account deficit but on the margin it is news that seems to be a bit over looked right now. Could certainly be viewed as a marginal offset to Asian diversification. If you get some other dollar positive news, like falling U.S. gov't spending, it could turn the currency game a bit.

A bigger picture thought and not so important in the near term I would imagine.

Yields Resume Trend

The new highs in the 5-yr yield yesterday confirm my view of the jobs report. The Fed sees rates as accommodative and is worried that commodity inflation (PPI) could eventually move the CPI. The economy is not very strong though which could lead to political pressure to choose inflation over unemployment. That jobs number confirmed economic weakness while still putting up a strong headline number for employment growth. That leaves us with accommodative rates, commodity inflation and no pressure to keep rates low.

Stocks are tough to call here. They may be a safe haven against inflation and can lag interest rate moves by months. I tend to think they will have a negative short-term reaction to higher yields but we now have lots of support from last year's highs and this year's lows nearby.

The ECB is making some tough talk about inflation but I still see their next move as a liquidity increase to bring the Euro down. I have thought that for over a year.

Can Adobe hold the Breakout?

Watching Adobe (ADBE) closely in here. I thought the close yesterday was a bit weak. It barely managed to keep the $65 level. Today's action looks like day traders piling in. If the market rolls over it might make sense as a short against these early highs.

Dollar Holdings Fall in India and China

From the FT:

The Asian central and commercial banks covered in the BIS data held only 67 per cent of their deposits in dollars as of September 2004, down from 81 per cent in the third quarter of 2001, said the Basel-based bank.

The data indicate the shift out of the dollar was most evident in India, where dollar holdings fell from 68 per cent to 43 per cent during the three-year period. Chinese banks have reduced their dollar share from 83 per cent to 68 per centa cut that mostly happened before the third quarter of 2002.

On first blush these numbers are a lot like the news out of S. Korea but they also have a more positive interpretation that the adjustment is behind rather than ahead. The article also points out that the shift is caused more by a falling dollar than by any change to buying habits.

Oil Bet

Two weeks ago today, I offered to a bet to a friend that Exxon Mobile (XOM) would make a high in the next two weeks that would not be eclipsed for two months. My friend did not take the bet. I am not sure at this point whether that is good or bad. I did not think the rally would last until Friday so obviously we have a good shot at knocking out the high in the very near term. It still feels more like a top than an entry point though.

Maybe not so for oil prices themselves as the stocks rallied well in front of the underlying commodity.

Metals on the Move

The underperformance and relatively nasty looking charts in the precious metals really stands out compared to the CRB and crazy strength in other commodities. On a pullback it will be interesting to see if they can hold on to their gains from the last couple weeks. If not I would look out in that sector. That weakness could be a sign that the world is overplaying a move by foreign CBs out of the dollar. Of course it could be heavy based on worries about IMF selling but I lean towards the former.

Dollar strength with rising commodity prices could be interpretted as an adjustment to high productivity gains in the service sector that have little impact on commodity supplies.

A few interesting charts in here are EK, NKE, and RTN.

Daily Kos to Focus on Greenspan

I doubt this will have an impact but I don't think Daily Kos is on the radar of many financial institutions. This is what is there:

As you've probably noticed, there have been several Alan Greenspan-related posts on the main page in just the past day or so. In one of those threads, blogswarmer Bob Brigham suggested that we "unleash the blogosphere" on Greenspan. It's a brilliant idea - no one is more worthy of having a halo-ectomy than St. Alan - so let's have at it.

If you're interested in joining this research project, here's my thinking on how it should proceed. (And feel free to chime in with suggestions on the process as well.) We should hunt down anything Greenspan has ever written, said or done that reflects poorly on him. This would include erroneous predictions, older statements which contradict things he's said recently, and anything that's just plain wrong, venal or stupid. The only rules are that it has to be true (of course) and sourced (preferably with a link, but if you're using Lexis, that's cool too - just tell us where it's from).

And for those of you who want to really get down & dirty in the trenches, we can turn this into a one-degree-of-separation venture. That is, if you can find similar material for anyone who is closely linked to Greenspan, that's fair game, too. Good examples would be Greenie's idol, the nutbag "objectivist" Ayn Rand, and Andrea Mitchell, his NBC reporter wife. (An aside: We can debate the merits of this approach all you like, but suffice it to say, there is no question that Republicans do the same crap to us all the time. If you still want to play by the Marquess of Queensberry rules, fine - but I've moved on to brass knuckles.)

Might make for interesting reading. Maybe they should start by finding out what happens on his trips to the White House.

Positive Employment Headlines but...

I watched the report come out on CNBC and always marvel at how important the comparison to consensus is for them. They have been pitching the same "not too hot, not too cold" story about the jobless recovery for over a year now. Their take was that the numbers beat consensus but not by too much, maintaining growth but without inflation fears.

Brian Reynolds says: "We think it is a weak number under the surface. The Birth/Death model swung from -280k [in Jan.] to +100k [in Feb.], as we expected, adding 380k to the total, so the underlying trend of jobs weakened markedly. In addition the pace of aggregate hours worked looked slightly more modest than previously thought."(minyanville $$)

I am not a payroll economist but still noticed that half a million people (a full million if you don't trust the seasonal adjustments) opted for part-time work for non-economic reasons with the headline unemployment rate still rising. That is a bit odd but maybe that sort of shift takes time to carry through to create demand for replacement. Would certainly slow the pace of aggregate hours. The full report is here.

The economy maintains the status quo while giving the Fed the green light to hike rates further.

**added at 1:13 PM - Barry Ritholtz chimes in on the not-too-hot-not-too-cold side.