May 1, 2019
* Euro and Sterling are only real movers yesterday…
* Big Data Day with the FOMC announcement to finish it off…
Good Day… And a Wonderful Wednesday to you! And Welcome to May! it’s May Day! Where’s the Maypole? What was in the water yesterday that caused a few of my longtime acquaintances to contact me? First it was my longest time known friend, Robin who I met in kindergarten! Then it was longtime colleague Chris, and followed up by Christine, and then former Mark Twain Bank colleague, Neil… I had just heard the previous day while driving around making stops, because that’s what I do when I’m by myself! And I heard the oldie by Bobby Vinton, Mr. Lonely… And while he was singing it from a soldier’s point of view, I related to the line… Letters, never a letter, I get no letters in the mail… And then the next day, POP! Van Morrison greets me this morning with his song: Brown Eyed Girl… Whenever I hear that song, I think of my friend, Jennifer, who used to say it was her song, as he was singing to her!
Well… I told you yesterday morning that the Eurozone had just printed a better than expected GDP report, which dispelled some of the thoughts that the Eurozone was heading to a recession, and that it was helping the euro push higher… And that was the thought of the day for Currency Traders who got caught short the euro, on the recession bet…
Pound sterling was also on the move higher VS the dollar yesterday, as there were positive signs coming from the BREXIT talks… Again, like I said with the China / U.S. Trade Talks… I’m from Missouri, I’ll have to be shown… But for now, traders are happy to think that it will all right on the night for sterling with the BREXIT talks nearing an end…
The rest of the currencies didn’t really see much movement yesterday… My spider sense was tingling last week, and I’ve been waiting to see what happened afterward to talk about it… I’m talking about the price of Oil, which was on daily move higher 10 days ago, and then right when analysts were talking about it going to $70… it got the rug pulled from under the rally, as if from up the sleeve of Bullwinkle, the U.S. produced a report showing that Oil supplies were greater than previously thought… Boy my spider sence was tingling and working over time, with all kinds of thought about how reports are manipulated to make us feel good, and this one falls right there, right? Don’t get me wrong here I don’t want to have to pay $4 for a gallon of gas, but why can’t the manipulators just let markets be markets, and see what happens?
And my main concern here is the Petrol Currencies… They aren’t allowed to get off the porch with the Big Dog euro, and chase the dollar down the street, when the price of Oil is floundering like it has since the supplies report was pulled from Bullwinkle’s sleeve last week…
Speaking of manipulations… Recall yesterday morning I told you that Gold had lost $6.50 the previous day, but was up the same amount in the early morning trading? Well, that early morning gain got wiped out during the day… and in a day or two, I’ll read about how “X” number of contracts to sell all hit the market at the same time… No manipulation here folks, just move along for these are not the droids we’re looking for…. NOT! NOT! NOT! Last week I printed a piece in the FWIW section about how a trader talked of how when trade desk has a large position to sell, they do it in drabs and bits, to keep the price pretty steady while they sell… Not got all-in with arms full of short contracts to throw at the market at once…
I get so worked up over this stuff, that it takes me a minute or two to calm down before I can write more….
OK… Yesterday, Canada printed their Q1 GDP and it was not pretty… What the heck is going on in Canada? The Bank of Canada (BOC) last year hiked rates, but it sure looks as though they are going to have to reverse that hike… Recall that the hike was made to water down the hot housing markets of Toronto and Vancouver… Well, what are you going to do now?
In other data… China printed a very scary PMI for April… The CAIXEN PMI, which is a private company that tracks manufacturing strength with a manufacturing index called the PMI, it’s NOT the official Gov’t report on manufacturing but it’s widely respected, so the markets react to it… And yesterday the CAIXEN PMI for April fell to 50.2 from 50.8 in March… 50.2 is within spittin’ distance of going into contraction folks… Remember, I told you that the Trade War would hurt both countries? Well, it’s doing a number on China right now…
And here in the U.S. we had one of the regional PMI prints yesterday from Chicago, and in it’s latest check on the pulse of manufacturing for the region showed a HUGE drop in the index price from 58.7 in March to 52.6 in April, the lowest level for this data since January 2017… So, it appears the Trade War is doing a number on the U.S. right now too…
And remember the Chinese saying that the wouldn’t allow the renminbi to weaken to offset the effects of the Trade War? Well, don’t look now but the renminbi has been on a one-way move downward recently…
It’s Labor Day Holiday in several countries around the world but mostly centered in Europe. China also observes this day as their Labor Day…
The U.S. Data Cupboard had some interesting, but certainly not real pieces of economic data, prints yesterday, so let’s go through them with some thoughts on each… First the Case/Shiller Home Price Index for Feb, printed and showed once again that home prices continue to fall… Then we saw Consumer Confidence’s index drop from 129 to 126… Still too high if you asked me, but they don’t ask me, so it is what it is!
Today’s Cupboard has the monthly ADP Employment Report, the precursor to Friday’s BLS Jobs Jamboree… We’ll also see prints from both outfits that measure manufacturing here in the U.S. The Markit PMI Index, and the National ISM Index… Don’t look for major drops like we say in the Chicago region yesterday from these two, because for some reason the regional prints never really factor into the National prints… Hmmm… But don’t worry about it, there’s nothing fishy going on here… fingers crossed!
And the biggest thing today is the conclusion of the two-day FOMC meeting by our Fed Heads… Like I said yesterday, I don’t expect any rate changes today, but IF and that’s a BIG IF, Fed Chairman Powell, gives us the wink and nod of a rate cut coming soon to a theater near you, then to the markets that will be as good an actual rate cut now… So, watch for that because usually when the U.S. signals rate cuts, Gold reacts favorably…
Yes, the Fed Heads have to put away all the board games they had to finish all the board games they had out and get them put away before rolling their sleeves back down, putting their jackets back on and checking themselves in the mirror before making their announcement this afternoon… So, finish your game of Battleship! By, Joe you’ve sunk my battleship! HA!
To recap… A better than the average bear GPD report in the Eurozone yesterday put to bed, for now at least, the thoughts of a recession in the region, and the euro has responded favorably to the report. Pound sterling is rallying on news that the BREXIT Talks are going smoothly… And the Trade Talks between China and the U.S. are sending signals that they may be completed soon… Chuck says, he’s from Missouri, they’ll have to show him! The rest of the currencies didn’t get much movement yesterday, and Gold struggled throughout the day, but that could all change if Fed Chairman Powell gives the wink and nod for a future rate cut this afternoon…
For What It’s Worth… Well, I’ve been talking about a liquidity crisis for a few years now,,, And every now and then there are alarms going off about how it’s becoming a problem, only for them to be proven to be false dawns… But this time… This is JPMorgan talking about a liquidity problem, and since they are so big, and into just about every market there is, maybe we should at least listen to them and see if what they’re talking about makes sense, eh? You can find the article here: https://www.zerohedge.com/news/2019-04-27/jpmorgan-we-are-approaching-point-again-where-us-banks-run-out-liquidity
Or, here’s your snippet: “Now it’s the turn of everyone’s JPMorgan contrarian, Nick Panigirtzoglou – the author of the popular “Flows and Liquidity” report, and a lone skeptical voice amid an otherwise permabullish landscape dominated by Marko Kolanovic – to warn that despite some $1.4 trillion in excess reserves sloshing around, “the liquidity conditions in the US banking system are perhaps close to decade lows” which in turn is manifesting itself in the breakout of the effective Fed Funds rate above the IOER, which as Morgan Stanley suggested last week, the Fed may have no choice but to cut by another 5 bps at the next Fed meeting just to “normalize” the fed funds rate and restore some temporary control to the most important interest rate in the world.
In his latest weekly note, JPM’s flows strategist recaps what we said previously, noting that “the liquidity effects from the Fed’s balance sheet resurfaced over the past week following a spike in overnight interbank rates. While a previous spike in both the median and 75th volume-weighted percentiles of the Fed funds rate to 3bp above the Interest rate on Excess Reserves (IOER) around quarter-end was quickly unwound, these rates spiked again over the past week to 4bp and 5bp above IOER creating a more persistent and concerning up move.”
Chuck again… I feel somewhat vindicated that someone besides me is talking about a liquidity problem here in the U.S. I guess we’ll all have to wait-n-see, but in the meantime… Got Gold?
Currencies today 5/1/19 American Style: A$.7058, kiwi .6665, C$ .7468, euro 1.1238, sterling 1.3070, Swiss $.9849, European Style: rand 14.2918, krone 8.6260, SEK 9.4957, forint 288.52, zloty 3.8067, koruna 22.7767, RUB 64.52, yen 111.30, sing 1.3586, HKD 7.8447, INR 69.55, China 6.7346, peso 18.92, BRL 3.9359, Dollar Index 97.36, Oil $63.50, 10-year 2.51%, Silver $14.89, Platinum $886.00, Palladium $1,372.00, and Gold… $1,282.80
That’s it for today… I remember when I was younger, that May Day meant that the communist countries would get their respective military all dressed up and have a parade, with tanks and other stuff… Quite the spectacle… Ok, sad stuff from the University of North Carolina yesterday, as there was a shooting and some deaths… UGH! Please be safe out there folks! My beloved Cardinals won again last night, but now they have to face two of the best pitchers in the game the next two days… This will be interesting… And our Blues will be back on the ice tonight, with yet another very late start time! UGH! But, so be it… Let’s Go Blues! Gerry Rafferty takes us to the finish line today with his song: Get It Right Next Time… I hope you have a Wonderful Wednesday, May Day to boot! And will continue to Be Good To Yourself!
Chuck Butler