Chuck Butler’s: A Pfennig For Your Thoughts
September 18, 2017
* What did traders know on Friday?
* Portugal gets upgrade from S&P
* FOMC meets this week!
Good day… And a Marvelous Monday to you! Well, that was very, much a let down this weekend, sports-wise, as both by beloved teams decided to not come to play… The Cubs swept the Cardinals, and my Mizzou Tigers, looked like kitty cats… I flew my Mizzou flag, anyway… I flew it when the won the Eastern Division of the SEC two years in a row, and I have to fly it now that they couldn’t beat “bye”… A Flock of Seagulls greet me this morning with their song: Space Age Love Song…
On Friday, last week, I tweeted the following: “U.S Retail Sales are sluggish, Cap. Utiliz. falls, another sign that U.S. econ. has no legs” And so it was on Friday, the first day of the week with “real economic” data, that we saw disappointing results once more… When is someone at the Fed going to step up to the microphone and say, “We were wrong to hike rates with the economy weakening like it was, and now all we’ve done is weaken the economy more.” HA! As if! That’ll happen with pigs fly, folks…
The Currency traders saw the writing on the wall and pushed the dollar down on the day… But then as we ended the day, things began to unravel, and the currencies and metals were sold as if they the traders “knew something”… The overnight markets haven’t brought us much movement and so we’re pretty much seeing the currencies trade in the same clothes as Friday morning before the data prints.
So, let’s take a quick jog around the world this morning to bring us up to date… In the Eurozone, Portugal got a nice surprise as S&P Global Ratings upgraded Portugal’s debt rating, and their 10-year benchmark Gov’t bond fell 27 Basis Points to 2.53%… Something is wrong with this picture, or… maybe something’s not wrong with it… I’ll let you decide for yourself… The mighty U.S. 10-year Gov’t bond yields 2.21%, and Portugal, mind you, as a 10-year Gov’t yield of 2.53%… Wait! What? You mean to tell me that you only get a bump up of 32 basis points to swap out of a U.S. Gov’t bond to a Gov’t bond in Portugal? I’m just going to leave that out there to float around and let everyone chew on it a bit…
Besides, this is supposed to be a quick jog around the world, Chuck, not an epistle on Gov’t Bond yields… Sorry about that! OK, in the U.K. they had the excitement of a rate hike talk last week, that really pushed pound sterling higher, and this week they have PM May, to talk about BREXIT, and it’s here that we’ll hear for the first time the numbers associated with the exit… I’m thinking that the rate talk excitement will have cold water thrown on it after the BREXIT discussion.
In China, Consumer Confidence is rising to very high levels, and the Chinese are working on reform packages for the Chinese economy, and markets… Pretty smart if you ask me… What better time to introduce reforms than when consumer confidence is soaring? I can’t think of any better time! In other news from China, they reported that Chinese home prices fell last month, which is a sign that the measures that the Chinese put into place to cool the housing market have begun to take hold…
Wouldn’t that have come in handy back in 2005 or 2006, when the U.S. housing sector was bubbling up? To have had the Central Bank or Gov’t step in to say, “enough is enough” we’re putting an end to this bubble right now! Of course that didn’t happen, and why would it, when the Fed Heads themselves say they couldn’t see the bubble until it popped? I don’t know what they were looking at, but in 2003, in the white paper that I wrote, I pointed out that I saw a housing bubble forming in the U.S. How in the world did they not see one, if little old me saw the housing bubble forming years before it popped?
OK, that’s a discussion for the Butler Patio, so let’s take it out there, and leave the calm, adult, discussions here… Still working my way around the globe, brings me back to Canada… The loonie, which really saw some major buying after the Bank of Canada (BOC) hike rates a couple of weeks ago, is slowly seeing the love for the loonie fade, and it appears that the loonie is going to lose the 82-cent handle, unless a change in direction can be brought about. There’s no real data to rely on, so the loonie just drifts… UGH!
And now, back home, the U.S. Fed’s FOMC meets this week to discuss rates… Recall that I’ve said for months now that the Fed will skip going to the rate hike table at this meeting… We could hear them break down how they will begin to unwind their Balance Sheet… And that brings me to how this is all explained in the press conference that will take place after the rate announcement on Wednesday at 1 o’clock CT… I’m going to save some bits and pieces about the Fed’s meeting for the next two days, so that’s all I have to say here for now…
Well, “the boys in the band” had their way with Gold on Friday… UGH! Gold climbed out of the mud it had been throw in at 1,327 on Friday morning to $1,334, and then well, let’s just say, it got sold… And the sellers drove the price of Gold down to the closing figure of 1,319.20… There were a whopping 306,000 contracts traded on Friday… The excuse given for all the selling was that it appeared that the U.S would go the extra mile in attempting to resolve the N. Korean tension with diplomatic discussions, and not resort to a war.
I would like to think that for the sake of human lives that an agreement can be worked out… But the practical and logical side of me says, Chuck, you dummy! The N. Korean leader is hell bent and whisky bound to pick a fight with the U.S., so how will “diplomatic discussions” work? I guess we’ll have to wait-n-see, eh?
The good part of the days leading up to a FOMC meeting is that there’s a silence from the Fed Heads that is quite refreshing! But a quick look at the Economic Calendar tells me that as soon as that “black out period” ends the Fed Heads will be coming out in droves to speak.
The U.S Data Cupboard on Friday had the disappointing prints of Retail Sales, Industrial Production and Capacity Utilization… here’s the rundown on those prints… Retail Sales for August were a negative -0.2%, with auto sales causing the majority of that drop… Industrial Production also saw a negative print for August with IP printing at -0.9%, and Capacity Utilization fell from 76.9 in July to 76.1 in August… That’s a forward looking piece of data folks, and it fell by a large amount in August…
The U.S. Data Cupboard doesn’t really have much for us this week… So, the markets will be focusing on the FOMC meeting the concludes on Wednesday afternoon…. And I’m wondering how the markets will take the news of no rate hike… Probably not kindly to the dollar, BUT, if Fed Chair, Janet Yellen describes the unwinding of the balance sheet, which is widely thought to be her main mission this week, in a way that that gives the markets the idea that the unwinding will be of the size that represents a rate hike, then the dollar might not be so vulnerable to the no rate hike talk…
To recap… The U.S. Data on Friday was very disappointing, with two negative prints and one falling by a large amount… The currencies and metals tried to rally after these awful prints, but their rallies were met by strong sellers, that came out of the woodwork, and we ended the day with the currencies pretty much flat on the day, and Gold down $9.80 on the day… The FOMC meets this week…
For What It’s Worth… I was doing some reading on Saturday morning, waiting for my Tigers and Cardinals games to begin, and I came across this article about Russia becoming the 2nd largest leading Gold producer and thought it to be worthy… You can find it all here: http://news.xinhuanet.com/english/2017-09/14/c_136609991.htm
Or, here’s your snippet: “Russia will become world’s second largest gold producer with the launch of a major mining and smelting facility in the Far East, said the press service of the Ministry for the Development of the Russian Far East Wednesday.
After the facility was launched by Russia’s gold producer Poluys to develop the Natalka gold deposit in the country’s Magadan Region, the volume of ore processing will exceed 10 million tonnes per year, while the volume of gold production will be 13 tonnes per year, which increases the country’s gold production by 5 percent, the ministry said.
This will make Russia the second largest gold producer in the world after China, the press service quoted Polyus CEO Pavel Grachev as saying.
Polyus officially launched the first stage of hot commissioning of Natalka on Sept. 5. Full production is expected before the end of 2018.”
Chuck again… OK, so remember when I wrote about how Russia said they would retaliate the U.S Sanctions by ramping up their de-dollarization? And one of the ways they will do that is to ramp up their Gold holdings, and now they’ll be the 2nd largest producer of Gold? That certainly helps their plans, now doesn’t it?
Currencies today 9/18/17… American Style: A$ .8005, kiwi .73, C$ .8202, euro 1.1946, sterling 1.3550, Swiss $.96, … European Style: rand 13.2121, krone 7.8268, SEK 7.9587, forint 258.94, zloty 3.5893, koruna 21.8318, RUB 57.60, yen 111.27, sing 1.3465, HKD 7.8166, INR 64.15, China 6.5516, peso 17.69, BRL 3.1192, Dollar Index 91.91, Oil $49.96, 10-year 2.21%, Silver $17.58, Platinum $968.58, Palladium $935.16, and Gold… $1,318.20
That’s it for today… The cleanups in Texas and Florida, Georgia, etc. from the hurricanes continues, and they’ll end up costing hundreds of Billions of dollars in the end… Like this country had that in their kitty, right? UGH! Darling daughter Dawn and Delaney Grace stopped by to see me yesterday and make sure I was OK, here by myself… Delaney ran in, jumped on my lap and gave me the biggest hug… I needed that, and I think she knew that… we talked about all kinds of things before she had to leave. It’s an infusion week, so that means no Pfennig on Friday, just a friendly reminder… Tyrone Davis takes us to the finish line today with his song: Can I Change My Mind… And with that, it’s time to go! I hope you have a Marvelous Monday, and Be Good To Yourself!