June 6, 2018
* Currencies fight back on Tuesday
* Gold rallies, then gets sold… UGH!
Good Day…. And a Wonderful Wednesday to you! Another beautiful day here in the St. Louis region… My dad used to tell me on days like this, he’d say: Chuck, they don’t have days like this in the Soviet Union… Of course back then we were in a cold war with the Soviets… I tried that line on my older kids when they were younger, and they looked at me like I had three eyeballs, as the meaning of it passed them right on by! And once again the luck of the draw is an apropos song today, as Al Stewart greets me with his song: Time Passages… There’s a great line in the song that goes like this: Well it’s just now and then my line gets cast into these
Time passages… great use of the fishing term, eh?
The currencies fought back against the dollar again on Tuesday, with the euro climbing back above 1.17… But in reality, this has been a range bound week so far… A little up, a little down, and so on, but all in tight ranges… The world is barking about the latest announcement of tariffs by President Trump. I would bet that he’s saying, “let them bark, they’ve taken advantage of the U.S. for too long!” The problem with going about evening out these trade imbalances with tariffs, is that they may not be the root cause of a recession, but I would be they are at the scene of the crime!
Yesterday, I talked about the bond guys and what’s going on in their minds right now… And the 10-year’s yield remained below 3% again on Tuesday. The good folks at FX Street, reprint my Pfennig each day, and then post it on Twitter, and yesterday’s headline of What Are The Bond Guys Telling Us? got a lot of airplay…
I’m nearing my one-year removal from my previous employer, and I couldn’t be happier about the move for the Pfennig… Not only does the FX Street repost the Pfennig each day, so does the Aden Research group that publishes the Pfennig now. The Aden group also sends it to their Aden Research readers, so I have so many new readers right now, and the direction for the Pfennig is upward and onward… And that’s all I can say about that…
Well, did you hear about the 2 completely different meetings of nations this weekend? First it’s the same old G-7 that will meet, but I’m sure this meeting won’t be so chummy-wummy, as the nations try to nail down the U.S. for its tariffs… the other meeting of nations will happen in Asia, where the likes of Russia, China, and a bunch of the “stans” will all meet, and I doubt they’ll be talking trade tariffs, but more likely progress on China’s new silk road project, that I’ve discussed in the past. So, we have those meetings going for us this weekend! HA, as if!
The U.S. economic data sure doesn’t shout the need to hike rates, but as I told you yesterday, there odds are at 91% that the Fed will hike rates this month. And I personally am really surprised that this charade of rate hikes has continued to what now appears to be this month. Longtime readers are well aware that I come up with thoughts and ideas as to how I see things going, long before they take place… And sometimes I even put time lines on things I’m calling for, like the reversal of interest rate hikes by the Fed…
Obviously, that’s not happening this month… But with them still using the Phillips Curve, as their model to detect rising inflation, they are strangely working with outdated models, and will continue to go down this interest rate hike rabbit hole, until the economy blows up in their collective faces… But the economy while teetering on blowing up, is still muddling its way to a whopping 2.16% average GDP for the last 10 years! So, I still maintain that this economic expansion is getting very long in the tooth, and there are a list of things that could go wrong for the economy, and if any of them do, well… it’ll be like the one guy at a ballgame that decides everyone needs to do the wave… he won’t be happy until the most of the people in the ballpark join him in doing the wave… OK, maybe that wasn’t the best example I was looking for, but it’s what my fat fingers started to type before I could stop them!
The Fed meets next week(6/12 & 13), and so too does the European Central Bank (6/14)… Man would l like to see the ECB begin to unwind their stimulus… First I would like for them to get away, far away from their negative deposit rates structure… The bond buying can continue for now, but had better begin to be unwound by fall… The Fed on the other hand, as we already discussed will be hiking rates to 2.00% after they put away their board games from the two-day meeting. The Tale of Two Central Banks, coming to a theater near you, next week… Geez, I can’t wait! NOT!
Yesterday, I read a report from the GATA people, and it caught my eye, because the title was about the Chinese renminbi, and not about Gold… I said to myself, I should check this out, because, just earlier in the day when I was putting together the currency roundup I had noticed that the Chinese renminbi was losing ground VS the dollar, and wondered, what’s up with that?
I would have thought that given the history of the past couple of years, with Capital outflows from China that the Peoples Bank of China (PBOC) would have kept the renminbi stronger… And then in reading the article it all came together… The PBOC is keeping the renminbi stronger, per se… You see the dollar index this year has gained over 6%, but the renminbi has lost only 2%… Historically, since the basket of currencies was introduced in 2014, to price the renminbi, it has moved almost lockstep to the dollar, in an inverse manner… So, as the dollar index rose, the renminbi went down, and vice versa… So, I was right, but not completely right… The PBOC is keeping the renminbi stronger but in the whole scheme of things… Interesting, eh?
Gold finally saw a somewhat strong bid in yesterday’s trading, and was up to $1,304 at one point in the day, but… that couldn’t last not with the nearly 260,000 contracts traded hitting the market, and Gold closed the day at $1,295 and change… UGH! Get people/ investors all lathered up and then pull the rug out from under them… These price manipulators are not nice people folks… But I think, like I said the other day, that Gold is biding its time before it breaks out of this range trading and heads higher…
The GATA folks sent me another note yesterday, and it was about how, well, I had better let them tell you… “South African market analyst Nicholas Biezanek reports that whatever is represented by the explosive increase in use of the “exchange for physicals” mechanism to settle gold and silver contracts on the New York Commodities Exchange represents, it is not drawing down the inventory of metal vaulted in London. So what exactly is happening with those “exchange for physicals”? Whatever it is, Biezanek and Organ conclude that the mechanism is a fraud, concealing a lack of metal. ”
Oh, boy just another scam for the markets to deal with… I shake my head and wonder why people can’t put their good minds to work on coming up with a cure for cancer or ALS…
Speaking of ALS… I was saddened to read the news yesterday that Dwight Clark had died… He was only 61… But, as with just about everyone else that is diagnosed with ALS, he has lost his battle with the disease… My mind immediately went to my older sister Barbara, who died last year from the same disease, ALS. It’s a devastating diagnosis, folks, and it’s a shame that a country as great as ours can’t at least find a treatment that prolongs quality of life, if not a cure… I’ll always remember “the catch” by Dwight Clark… therefore I’ll remember him.
The U.S. Data Cupboard today has the second revision of Productivity data from the 1st QTR, and should remain muted… We’ll also see the Trade Deficit from April… Recall that late in April, the dollar began to swing back at the currencies, but for most of April it was weaker, so the there could be some jiggle room in the data, we’ll have to wait-n-see.
And the price of Oil recovered a bit yesterday, as inventories were lighter than expected… So, with Oil recovering on the day, the rest of the commodities rallied too, and they brought the commodity currencies along for the ride… Aussie and N. Zealand dollars, Canadian dollars/ loonies, and S. African rand… Back in the day when I created the Commodity Currency CD at my old place of employment, the Russian ruble wasn’t available/ heavily traded, but if I were putting the CD together now, I would definitely include the ruble..
To recap… The currencies fought back on Tuesday, Gold saw a somewhat stronger bid, but had to settle for a small gain after being up $10 earlier in the day. The price of Oil also recovered on weaker inventories, thus allowing the rest of the commodities to join the rally. Chuck discusses the two separate meetings going on this weekend, and gives an R.I.P to Dwight Clark…
For What It’s Worth… I need to thank longtime reader, Bob, for another great article for the FWIW section today… This one is about how bad off countries are from having funds for chaos, like the financial meltdown of 2008, and can be found here: https://theconversation.com/the-worlds-economic-crisis-fighting-mechanisms-are-dangerously-inadequate-97608?utm_medium=email&utm_campaign=Latest%20from%20The%20Conversation%20for%20June%206%202018%20-%20103449111&utm_content=Latest%20from%20The%20Conversation%20for%20June%206%202018%20-%20103449111+CID_ca134b9722c6a028c3c1ae44dd099957&utm_source=campaign_monitor&utm_term=The%20worlds%20economic%20crisis-fighting%20mechanisms%20are%20dangerously%20inadequate
Or, here’s your snippet: “t was only in January that the International Monetary Fund (IMF) was celebrating the strength of the global economy, heralding “the broadest synchronised global growth upsurge since 2010”.
How quickly things have changed.
Argentina has since sought a bailout from the IMF, Turkey is facing a potential currency crisis, Indonesia is seeing investors flee, alarm bells are sounding for Italy and Spain, China’s debt remains a serious concern, and the only thing more uncertain than the fallout from Brexit is the outcome of Donald Trump’s trade war.
It’s time to review the world’s capacity to respond to crises.”
Chuck again… the article goes on to give a breakdown of countries’ reserves for chaos… And comes to the conclusion that it’s just not enough… Good article… but put away the sharp objects before reading it!
Currencies today 6/6/18… American Style: A$ .7645, kiwi .7035, C$ .7722, euro 1.1747, sterling 1.3420, Swiss $ 1.0141, … European style: rand 12.8367, krone 8.1134, SEK 8.7460, forint 271.27, zloty 3.6452, koruna 21.8180, RUB 62.06, yen 110.05, sing 1.3330, HKD 7.8468, INR 66.96, China 6.4040, peso 20.45, BRL 3.7657, Dollar Index 93.76, 10-year 2.94% , Silver $16.58, Platinum $901.93, Palladium $997.75, and Gold… $1,301.10
That’s it for today… Well, our welcoming back to the lineup for two star players last night didn’t go too well, and the Cardinals lost to the… wait for it… Marlins! UGH! There was a lot of rust on the arm of Carlos Martinez last night, hopefully his next start will be more normal. I be meeting one of my good friends for lunch today. Dennis Miller, will be driving to meet me at a local restaurant. It’s about a 3 hour drive from where he’s coming from so, I had better pick up the tab! Lots more to talk about in the currencies tomorrow, so stay tuned… Same bat time, same bat channel! Van Morrison takes us to the finish line today with his song: Moondance… It’s a marvelous night for a moondance…. I hope you have a Wonderful Wednesday, and Be Good To Yourself!
Chuck Butler