Good Day and top of the morning to you. It’s St. Patrick’s Day and I forgot to wear green this morning, so guess I’ll need to drink a green beer or two tonight in order to compensate. It’s a Friday with March Madness (college basketball tournament) in full swing, so it’s one of those pick days if you’re a sports fan. Investors and other market participants are still trying to digest the immediate impact and downstream potential resulting from Wednesday’s Fed meeting, but I’ll let Dane walk us through the finer points of the market action. First, here’s Frank coming to us from somewhere in the southern hemisphere.
Cafayate – Glancing at a few markets numbers suggest this might be the week that wasn’t. I am sure something moved significantly enough to be noticed, but I am stretching to see what that might be. A former colleague and early boss, Ed Bonawitz, used to tell tales from the 1970s when bond yields and bond prices could spend weeks near the same levels. It was times like this which make sitting on the porch and watching the traffic drive by a popular hobby. I guess the 95% probability that the market put on the Wednesday move by the Federal Reserve Board was really discounted in the market.
The lack of action – pretty nice for those with large positions in equities or other asset classes – and a talk with and by Doug Casey this morning made me think a little more about speculation. Where does that fit in a portfolio or does it at all? At what level of assets does it make sense? IMHO a speculation is not a bet like putting it all on black in Las Vegas (and interestingly, they don’t have to ask what your net worth is in order to determine if the bet is “suitable”). Instead, I think speculation involves taking better analysis of available information and then committing capital. Often unseen or unanticipated forces produce a loss, but speculations should occur when the odds are stacked (legally) in your favor.
In terms of currency investing, where we have always focused on diversification not trading, when is a currency a speculation and not an investment? Is adding Russia or Brazil a speculation, or does this add the emerging currency asset class to your portfolio? How far afield should you look? Those who added Russia in 2016 were happy with their decision – how will they feel at the end of 2017. For more insight and crystal ball gazing here are Mike and Dane . . .
Thanks again Frank. You raise a good conversation point as to the material difference(s) between investment and speculation since both assume inherent risks. Is the holding of euros considered an investment whereas as holding rubles considered speculation? From a traditional risk/volatility analysis, that scenario would tend to hold water. But what happens if the EU implodes, does the euro holding then become speculation? I mentioned yesterday morning that most of the currencies and metals were able to retain some, if not all, of the gains from Wednesday and that remained intact through the US trading session, so it was good to see some staying power. I’ll let Dane take it from here and give us the market update.
Thursday was a mixed day for the currencies and metals, as the markets continue to process and trade on Fed news. The Russian ruble lead the class with a 1 percent gain, despite the fact that oil was flat to down a tad on the day. On the other side of the ledger, the Antipodean currencies (AUD and NZD) were the biggest losers on the day. The Australian dollar was down by .5%, and the New Zealand dollar was down almost 1 percent.
The British pound was up over half of a percent on Thursday, as news of the Bank of England’s meeting trickled through the market. The BOE voted 8-1 to keep rates unchanged, but the dissenting member voted for a rate hike, and some believe that others voters will soon follow. However, the markets should be careful not to get too ahead of themselves, as rates are expected to remain stable for the next 2 to 3 years. Equally important, however, was the fact that the statement indicated that a removal of stimulus measures could be coming sooner than some were expecting.
The Swiss franc was able to crack parity Thursday, trading at .9952 – its strongest level since February 9. Most of the European currencies were able to carve out small gains against the dollar, as markets continue to digest the rate hike announcement from Wednesday. The Norwegian krone was the lone European loser, as it posted a small loss, falling .1%.
Silver spent much of the morning in the green and really looked to be on its way to making up a lot of the ground it has lost in the last couple weeks. However, the rally stalled at $17.56/ounce, and from there, the spot price fell right back to where it started. Silver settled at $17.28 for the afternoon, down 2 cents. Gold went on a similar run-up in the morning but was able to hold some of the gains, settling in at $1,226/ounce, up 0.65% for the day.
The data here in the US on Thursday was pretty solid, as jobless claims came in almost exactly in line with estimates at 241k vs. 240k projected. Continuing claims fell by a small amount as well, so good job data for the week. Housing starts were up 1.288 million vs. 1.251 last month, thanks in part to warm weather (I wonder how the recent blanket of snow in the north east will impact this number next month). The one blip on the good news was that building permits were down 6.2%. The Philly Fed Business index beat expectations, with new orders and shipments rising. This suggests that the Philadelphia Federal Reserve region’s manufacturing sector continues to improve.
This morning, we get University of Michigan Consumer Sentiment, as well as Industrial production and capacity utilization for February.
Thanks Dane. You did a lot of the heavy lifting this week, so I appreciate all of your efforts and help. As I came in this morning, the overall bias is a weaker dollar with most currencies and the precious metals sitting on marginal gains. The dollar index is still holding the 100 handle, but it turned out to be a good week to for foreign currencies as every major currency has seen a respectable move upward, which is primarily attributed to an unwinding of the massive long dollar positions in the lead up to the Fed meeting. Other than that, next week is going to be light in the way of economic data, so this should give us a better idea of underlying market conviction.
That does it for today. So, with that said, have a great weekend.
Currencies today 3/17/17.. American Style: A$ .7698, kiwi .7017, C$ .7499, euro 1.0730, sterling 1.2346, Swiss $1.0028, .European Style: rand 12.7576, krone 8.4750, SEK 8.8172, forint 287.75, zloty 4.0025, koruna 25.170, RUB 58.8702, yen 113.11, sing 1.4023, HKD 7.7622, INR 65.45, China 6.8873, peso 19.1897, BRL 3.1168, Dollar Index 100.39, Oil $48.94, 10-year 2.52%, Silver $17.32, Platinum $955.50, Palladium $773.00, Gold $1,229.95
EverBank World Markets
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