Blog Single

July 2, 2018

* Currencies continued to rebound on Friday

* The price of Oil jumps higher, but Gold remains without a bid…

Good Day… And a Marvelous Monday to you! And welcome to July! It’s Pfennig tradition that we being July like this: There I was on a July Morning, I was looking for love. With the strength of the night behind me, and a road of my own- Uriah Heep… I made 4.5 hour drive to the beautiful home of Ray and Donna Hambuchen this past weekend. They were wonderful and gracious hosts to the whole Butler family! Their home is on the White River in Arkansas, and I could have sat out on their deck overlooking the beautiful White River every day of my life! Steely Dan greets me this morning with their great song: Rikki Don’t Lose That Number…

I want to get this out of the way front and center this morning… With the 4th of July Independence Day Holiday on Wednesday this week, I’m going to make it a short week for me and the Pfennig… Today and tomorrow, and then off on Wednesday, and so on… Alrighty then, that’s put to bed, now let’s see what’s going on in the markets, economies and in the minds of dolts…

The currencies ended the week last week on a good foot, not a great foot, but a good foot, as they attempted to rebound after the week’s weak performance had them reeling… The euro traded back above 1.16 and the A$ had found its way back to 74-cents, after dipping to .7350 on Wednesday/ Thursday last week. But in the overnight markets last night, the A$ dipped back below 74-cents… Back and forth, back and forth… Get’s Old after awhile, eh?

The Emerging Markets currencies, and the Asian currencies continued to get whacked but not for the same reasons… I told you about 10 days ago about the Emerging Markets’ problems with rising debt servicing costs that come from the Fed’s rate hikes… And I also told you about how the Asian currencies, right now, appear to be the whipping boy for the dollar bugs, because of the Trade War…

But did you hear the news from Tokyo this weekend? 16 Asian nations are forming a Trading Block, that would cover over 1/3rd of the global trade… This would be a way for these countries to avoid tariffs on trade amongst themselves… There are many obstacles before an agreement is signed, which could come before year-end, and these obstacles include India’s requirement that any agreement to reduce tariffs on goods and services should allow for free movement of people, something India wants for its highly skilled information technology sector. You see when you get this many nations involved, every nation has their “been in the bonnet” item that will fill or kill the deal.

This is a must for the Asian countries, that include Australia and New Zealand to help offset the U.S. tariffs… As long as they keep that main goal at the top of their lists, and number 1 in their collective brains, they should be able to reach an agreement before year-end…

For the most part, I would stick with the major currencies through this rough patch with the dollar bugs hoopin’ and hollerin’ just about every day… For the major currencies will be able to stand up to the dollar bugs every now and then.

Gold finished the month of June down over 3%, and hasn’t seen the light of day in the $1,300 hand since mid-May. I get it, I get it, forget about all the hot spots around the world, and how they are like tinder waiting for a match, and that Gold should be well bid during this time… Well, no, actually I don’t get it… I don’t get why Gold isn’t reacting favorably to all this “stuff” going on in the world… I’m well aware of the physical demand for Gold from Central Banks in the East, and I’m also well aware of the short Gold paper trading… But to me, one should be on top of the other, thus giving Gold it’s proper due..

All I can say about this “selling of Gold on paper” is that it gives all of you who have procrastinated and put off buying Gold a cheaper price to buy! And after Friday’s performance, in which Gold added $4.40 to its price, the shiny metal sits at $1,248 this morning… As the early morning trading isn’t being nice to Gold…

The price of Oil continues to rise and this morning it’s trading with a $74 handle… One would have thought that ROPEC’s announcement last week that they were going to increase production would have brought the price of Oil back down… But, as I said last week, that thought is thrown out the window, once the U.S. puts pressure on its allies to not buy Oil from Iran…

Down in Arkansas this past weekend, I paid $3.54 for a gallon of premium gasoline… Before I left I paid $3.11 here in my little river town… I thought to myself, “man they must really like their gas here!” Now, some of the increase could have come from rise in the price of Oil on Friday, but, I get the feeling that most of the difference came because I was on a two-lane road in northern Arkansas, and it was the only gas station around…

We saw some interesting economic data on Friday last week… Personal Income and Spending, along with the Core PCE, the Fed’s preferred inflation calculator… OK, first things first… Personal Income was bang on expectations to gain 0.4% in May… But Personal Spending was not up to snuff, and only gained 0.2% in May… That’s not a good thing for the economy folks… And then the Core Personal Consumption Expenditures, which take out food and energy (like we don’t use those things every darn day of our lives!) and it rose to 2% annualized, which is the Fed’s Target!

Remember what the Fed Heads told us a few months back, that they were willing to allow inflation to run a bit once it hits 2%… So, why stop here? And I don’t think inflation will, folks… Like I’ve said before, I truly believe that we are headed to a low growth, high inflation time period… There’s a name for this phenomenon and it’s called Stagflation!

And while this will be a shortened week here in the U.S. and there probably won’t be anything but “junior traders” left on the desks of the major banks and brokerage houses come Friday. The Jobs Jamboree will go on without them on Friday morning… Today’s Data Cupboard has the ISM (manufacturing index) for June, you might recall that the Markit version of this data printed last week and showed slippage..

The yield on the 10-year Treasury continues to inch downward… I’ve said this before, and I’ll probably say it many more times, but the bond boys get the picture of the economy, and that’s why they have reduced the rate on the 10-year, which is used to price mortgages. Oh, and the overall yield curve? it’s doing its best imitation of Head East… Flat as a Pancake… for all of you not knowing what I’m talking about!

I tried to add a graph of the Yield Curve, but I guess I don’t have the skills required for such a thing… So, I’ll just keep typing words, and hope that you can visualize the Treasury Yield Curve flattening…

To recap… The currencies are attempting to rebound, and that has been going on since last Friday. The major currencies seem to be the only ones that have a chance to gain VS the dollar right now, as the Emerging Markets and Asian currencies get whacked for different reasons. Gold still can’t find a consistent bid, and is off again in the early morning trading today. The price of Oil has found a consistent bid, and is trading with a $74 handle this morning!

For What It’s Worth: James Bullard is the President of the St. Louis Fed, and someone that has been able to move markets with his words before, as he was the original Fed Head to mention QE2… Well, Bullard was speaking in St. Louis the other day, and had something to say about interest rates that I think you’ll find interesting. You can find it all here: https://www.marketwatch.com/story/fed-should-not-raise-interest-rates-just-because-second-quarter-gdp-growth-may-surge-bullard-2018-06-28

Or, here’s your snippet: “In an press conference with reporters following a speech in St. Louis, Bullard said the surge in growth is likely to be temporary and the economy’s growth rate will likely be on a downward trend in 2019 and 2020.

So the Fed should not react with a “permanent rate hike” to a “temporary” increase in output, Bullard said. The strong second quarter is also flattered by the quirks in the GDP data that continue to depress growth in the prior quarter. So the best way to view the second-quarter is to average it with the 2% growth seen in the first quarter, he said.

Bullard is one of two officials on the central bank that have been calling on the Fed to be cautious about hiking rates further.

The Fed’s benchmark rate, now in a range of 1.75%-2%, is close to neutral, neither stimulating or dampening growth, he said.”

Chuck Again… So… what he’s saying, in Central Bank parlance here is that The Fed should NOT raise interest rates just because the 2nd QTR GDP may surge… And I agree, as I said last week, the 2nd QTR GDP may be north of 4% when it prints later this month, but it will be like star that shines the brightest right before it flames out!

Currencies today 7/2/18: American Style: A$ .7363, kiwi .6737, C$ .7595, euro 1.1642, sterling 1.3160, Swiss $1.0074, European Style: rand 13.8058, krone 8.1648, SEK 8.9657, forint 283.17, zloty 3.7696, koruna 22.3205, RUB 22.32, yen 110.75, sing 1.3671, HKD 7.8454, INR 68.70, China 6.6193, peso 20.01, BRL 3.8761, Dollar Index 94.79, Oil $74.07, 10-year 2.83%, Silver $15.97, Platinum $839.05, Palladium $948.64, and Gold… $1,248.81

That’s it for today… I had a great weekend with my family, but my beloved Cardinals didn’t have a great weekend, as they were swept by the Braves… UGH! At Home, no less! double UGH! Storms rolled through last night, and I think they will cool things down a bit here in the St. Louis area But remain hot, which is fine with me! Yesterday morning it was early, and only Braden and I were up, and we watched a critter of some sort walk around outside looking for food. We had an interesting conversation to say the least! HA! It’s our Independence Day week! YAHOO! The great Carlos Santana takes us to the finish line today with his song: Black Magic Woman… So, keep cool, go out and make this a Marvelous Monday, and Be Good To Yourself! Can you do that? I knew you could! HA!

Chuck Butler