An RBI Surprise!
March 4, 2015 · by Chuck Butler
Good day…. And a Wonderful Wednesday to you! Well, I got all caught up on my lost sleep yesterday, which is good and bad… Good that I did so, bad that I slept a good portion of the day away! And what a day it was! Two mornings in a row I’ve been greeted by a Carlos Santana song.. This morning’s song is Europa… An instrumental, that features the clean, and precise guitar playing of Carlos Santana… I think I told you this a few years ago, but for new readers, Chuck and son, Alex, who is a guitar player extraordinaire, went to see Carlos Santana at the Fox Theater and after the show, I said to Alex, “Well, that was something wasn’t it?” Alex replied, “he alright”… Showing that he was not impressed, while I was on the other end of the spectrum, thinking that he had wowed me! Kids…
Well, Front and Center this morning, the Reserve Bank of India (RBI) (the Best abbreviation for a Central Bank, RBI) made a surprise rate cut overnight, pushing rates down by 25 Basis Points to bring their internal rate to 7.25%, at the unscheduled meeting. In my Sunday Pfennig that’s coming up, I highlight the Indian rupee, and in the piece, I mention that with all the ducks lining up in row for India, we could see rate cuts coming, and then 5 days before the piece will print, that’s exactly what we did see! But, I don’t think this is it for the RBI and rate cuts.. That is as long as India continues to move in the right direction, economically… But, that’s all I’m going to tell you about the Sunday Pfennig this week… You’ll need to make sure you look for it in your email mailbox…
The other Front and Center item we have today is the Bank of Canada (BOC) meeting… There are some observers that think the BOC will cut rates today… But when you have the stronger than expected 4th QTR GDP outcome staring at the BOC, I don’t see them having any other option but to keep rates unchanged… Speaking of the 4th QTR GDP it was so-so at 2.5% annualized.. And the Canadian dollar / loonie, wasn’t able to use this a springboard to higher levels. With the price of Oil looking as though it has stabilized around $50, the Petrol Currencies, like the loonie, are attempting to see what their respective economies are going to look like before cutting rates further…
Another Petrol Currency that will be looking at interest rates will be the Central Bank of Russia (CBR)… I think you will recall the CBR aggressively hiking rates all the way up to 17% during the ruble meltdown late last year… Well, with the price of Oil appearing to stabilize, and a peace agreement signed with Ukraine, I would think that the CBR would start to dismantle that 17% interest rate, and when they do, it will be in big chunks… Like 200 Basis Points (2%) at a time… Let’s see how the ruble reacts to these aggressive rate cuts… I would think that the initial knee jerk reaction would be bad for the ruble, but when calmer heads see that this lessens the blow the economy has had to take paying out 17% borrowing rates, things could even out.. For, I’m sure that the CBR does not want to upset the ruble apple cart right now… But, what has to be done, has to be done… period!
Australia printed their 4th QTR GDP number last night, and it printed right on top of expectations of .5% for the QTR, and 2.5% annualized… That GDP print allowed the Aussie dollar (A$) some room to move higher and add to the previous day’s gains… I think it’s important to note here that the Reserve Bank of Australia (RBA) has been quite clear about their not wanting the A$ to go too far ahead of the class… So, watch out here folks, the RBA could be laying a trap for the hot money coming into Australian bonds, and bank deposits…
OK.. all this 4th QTR GDP talk reminds me of my gaffe the other day, that a dear reader pointed out to me. The sad thing is that I did all the “new math” and such and thought I had put a feather in my hat for doing so, only to find out I messed up! You see the other day, I was talking about the latest round of hedonic adjustments that the Gov’t put on GDP calculations, and that when they were announced last year, we were told they would add 3% annually to GDP.. So, since the 4th QTR 2.2% GDP was an annualized number, I didn’t have to divided 3% by 4 and all that, I simply had to take the 3% annualized adjustment and subtract 2.2%… That leaves us with a negative -.8% GDP in the 4th QTR, IF we calculated it like it was calculated the year before… No wonder bonds yields are stuck around 2%, and no wonder things just don’t seem to be hitting on all 8 these day…
The Searchers are singing one of my all-time fave songs… Love Potion Number 9.. on the iPod right now.. I took my troubles down to Madame Rue, you know that gypsy with the gold-capped tooth… Geez I love that song!
The Chinese renminbi / yuan was allowed to appreciate overnight.. The first appreciation in a week! I read a piece yesterday about the Deputy Gov. of the Peoples Bank of China (PBOC)… Yi, was talking and mentioned that he didn’t see a need to widen the trading band of the renminbi/ yuan… I found that to be quite interesting and telling too… First of all, let me remind you that the Chinese don’t just say stuff to say it… When they say something, they mean it, and they intend to do whatever it takes to make what they said come to fruition. So, when Yi, said that he didn’t see a need to widen the trading band, he was telling the markets that the renminbi is not going to move appreciable higher in the near future, nor is it going to move downward appreciably in the near future… Slow and steady, is the Chinese renminbi, ever since it dropped the peg to the dollar in July of 2005… Can you believe that? 10 years has gone by since that happened! I remember I was in the office on a Saturday (back then I had to work a lot of weekends!) and pulled up the news to see the announcement that the peg had been dropped… Since then the renminbi has gained more than 24%, and before last year’s adjustment it had gained nearly 30%.
Well, the euro is weaker again this morning… This time it was weaker Service Sector PMI’s from Italy and Spain that pushed the euro down ½-cent this morning, and to a low that the euro hasn’t seen since 2003, and in 2003 it was going up when it hit this level… Yes, that reminds me of the white paper I wrote in the fall of 2002, titled: 2003, the year of the euro… that proved to be quite prophetic as the euro started 2003 at 1.0336, and finished the year at 1.2647… But that was in the past, and doesn’t do us any good now! Well, yes I realize that, but just talking about 2003, reminded me of that scenario, and before I knew it, my fat fingers brought me here!
I saw this story and smiled… Australia’s Treasurer is a guy named “Joe Hockey”.. and immediately I think that he’s some top ranked hockey player… You know like “Johnny Football” was here while in college… But that’s just his name, and like Pee Wee Herman used to say, “That’s my name, don’t wear it out”… (I can do Pee Wee Herman’s voice too!) Well, anyway, we could sit here all day and play the “name game” Shirley, Shirley bo burly, banana fana for furly, fee, fi, mo, mirley! Or something like that.. (spell checker didn’t like the name game words! HA!) All I know is when I was a kid, the other kids used to sing that song with my name, and they always ended up laughing hysterically because they got to say a bad word… Of course “got to say a bad word” only because an adult wasn’t near, otherwise they would be sucking on a bar of soap!
Getting back to Joe Hockey (that just brings a smile to my face saying that name) it appears that he has observed some major trading in the A$ minutes before the RBA announcement the other night that kept rates unchanged… And the authorities are going to investigate this… I hope they find the dirty dogs that got in on leaked news and then profited before anyone else could! And then we can kill them, No, first we hang them, then we kill them, no, first we hang them , then we shoot them, then we kill them… HAHAHAHAHAHA! Two Pee Wee Herman quotes in the same letter, boy you’re on a roll today, Chuck!
I was looking through the articles on the Bloomberg this morning, and saw one that caught my eye, titled: In a Zero-Rate World, Brazil’s 12% Finds Few Buyers… Funny, didn’t I just write about the Brazilian real and the high interest rate yesterday morning? Oh, well, move along here Chuck, this is not the droid you’re looking for… But to me it is important that I see other outlets write something after I’ve written it, because they must have thought what I said was worth a hill of beans… Here’s a short snippet of this report… “What’s perhaps the most eye-catching about the decline (of the real) is that it comes at a time when Brazil is ratcheting its benchmark interest rates to over 12%, a sharp contrast to the reductions and monetary stimulus being pursued by policy makers around the globe. To yield-starved investors, those rates should scream buy. But they don’t.”
Well, Gold sure went for a ride yesterday… In the early morning, while I was writing it was up a couple of bucks, then fell throughout the morning to $1,194, then turned around and ran back up to $1,210, only to see it then fall $5 to close… Mr. Toad’s Wild Ride, for sure for the shiny metal yesterday… I see this played out like this… of course I don’t know any more than anyone else here, I’m just playing this out in my head… I see the price manipulators driving the price of Gold down with their short position paper trades, and then I see the Chinese, Russians, and India backing their trucks up, and buying truckloads of physical Gold, thus driving the price back up…
Of course that’s a simple logical explanation of what happened yesterday… What? You expected me to come up with some elaborate idea with special effects, explosions, and car crashes? Obviously you have me mixed up for someone else… What you see is what you get, simple and logical…
I read a piece on the Daily Reckoning www.dailyreckoning.com the other day, where they were talking about an article that author James Rickards wrote regarding why the U.S. is allowing China to accumulate Gold… I then fired off an email to my friend, and head of the Daily Reckoning, Addison Wiggin, and asked him if he followed Gold researcher: Koos Jansen from bullionstar.com? and if he didn’t he might, because Koos’ research shows a much different picture of the Gold holdings that China has accumulated… I wasn’t trying to be one of those people that write nasty stuff, I just wanted to give him another resource if he wanted one… The Daily Reckoning was the first emailed financial newsletter that I ever read every day… Back then it originated from France, where Bill Bonner and Addison Wiggin lived and worked from, and I would see Addison at a Conference and he would always tell me that he was amazed that I got my letter out before they got their letter out and they were 7 hours ahead of me! We used to laugh about that…
The U.S. Data Cupboard was basically empty yesterday, but today will have the precursor to the Jobs Jamboree… The ADP Employment Change report, which is supposed to give us a good indication of what the BLS has in store for us on Friday. But that didn’t work out so good last month, when the ADP report was much smaller than the BLS surprise… so, it will be interesting to see if this month the BLS report comes back in line with what the ADP report shows us today, which is a rise of jobs added by 219,000..
The Fed’s Beige Book will print this afternoon… don’t expect any fireworks from that folks… it will be the same old, mumbo-jumbo about how the regions see their respective local economies, and the Markit PMI’s (manufacturing index) will also print, which is pretty anticlimactic given the national ISM already printed this week… But these people at Markit think they have a better hoola hoop… So, let them print their hearts out!
For What It’s Worth… Ron Paul, tried to get a bill passed that would require an audit of the Fed, before he retired from Congress… And now it appears that someone else has picked up the ball and is going to run with it. I found this on Reuters here: http://www.reuters.com/article/2015/03/03/us-usa-fed-hearing-idUSKBN0LZ2DL20150303
“The chairman of the U.S. Senate Banking Committee said on Tuesday that the Federal Reserve is not immune from congressional oversight.
Senator Richard Shelby said at a Fed reform committee hearing on Tuesday that the panel will explore reforming the Fed system, as the Alabama Republican and other lawmakers add pressure to the U.S. central bank to increase its transparency.
Fed officials have said they will resist any effort that impinges on the central bank’s independence from political interference.”
Chuck again… I wonder how many tax payers out there even care if the Fed is audited… Should be an interesting debate, not sure how the political winds will blow on that one.
To recap… The RBI cut rates 25 Basis Points, the Bank of Canada meets today, and a few countries printed their 4th QTR GDP reports. The dollar is up against the euro this morning, but down VS most of the other currencies. Gold went for trip on Mr. Toad’s Wild Ride yesterday, and Chuck discusses the need for Russia to begin to dismantle the 17% interest rate that the CBR has in place now that the price of Oil has stabilized, a peace agreement has been signed, and the ruble is, while still weak, relatively stable..
Currencies today 3/4/15… American Style: A$ .7850, kiwi .7605, C$ .7985, euro 1.1140, sterling 1.5350, Swiss $1.0395, … European Style: rand 11.7705, krone 7.7345, SEK 8.2895, forint 274.90, zloty 3.7405, koruna 24.6420, RUB 61.65, yen 119.55, sing 1.3665, HKD 7.7550, INR 62.25, China 6.1525, pesos 15.02, BRL 2.9530, Dollar Index 95.61, Oil $50.79, 10-year 2.12%, Silver $16.36, Platinum $1,179.31, Palladium $822.88, and Gold.. $1,206.85
That’s it for today… Well, the Cardinals get a day off today, so I should take a day off too! HA! Too late for that! Spring Training Games start tomorrow for my beloved Cardinals… It seems like a very long time ago that I last saw them play, so I’m excited as a school girl to see this get revved up! Our Blues made 3 trade deadline deals… I usually don’t get excited about trade deadline deals in hockey, because you upset the chemistry of the locker room, and right before the drive for the playoffs begins is not the time to do that.. It’s a long list of failures that goes with these trade deadline deals that the Blues have made over the years… the most famous… Garth Butcher or Ryan Miller… I rest my case! Mighty (NOT!) Mizzou won a basketball game last night, but this team is going nowhere… Yes is playing on the iPod right now and the song is: The Rhythm of Love… that’s a head bopping, shuffling in your seat song! Alex says his training for the ½ ironman triathlon that he’ll enter this summer to raise funds for ALS, is going well… He’s also playing club water polo, so he’s busy! And with that… I had better get out of your hair for today, and get this out the door! I hope you have a Wonderful Wednesday!
Chuck Butler
Managing Director
EverBank Global Markets
Editor of A Pfennig For Your Thoughts
1-800-926-4922
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