Did I Hear That Yellen Greased The Tracks?
February 28, 2014 · by Chuck Butler
Good Day! And a Happy Friday to one and all! Another week in the books… That takes me to less than 2 weeks before I head south to Spring Training… As I walked across the wind tunnel bridge, freezing my tail off this morning, I thought about how much I dislike winter… We’re two months into this brutal winter, with one month to go… There’s some excitement in the currencies this morning, so I’ve got to stop thinking about how darn cold it is, and concentrate on what I’ll talk about today, besides the weather!
Front and Center this morning, the euro is on the rally tracks, big time! And for what reason, I hear you asking? Well, Eurozone inflation printed for this month, and they came in at .8%, which beat the expectations for a drop to .7%… And the euro took off! At least the single unit had a good base from which to move, and that base was getting formed yesterday, as Janet Yellen was speaking, so let’s see where the beginnings of this euro rally started, and go from there…
The new Fed Chair Janet Yellen, was speaking again yesterday, and all the while she was speaking the euro kept creeping higher, I said to the desk, “It appears that Yellen is doing her best to push the euro higher”… Well, it wasn’t so much that she was supporting the euro, but rather dissing the dollar. I saw that she said something to the order that “the ending of the bond purchases are NOT on any preset course”… Did you read that? And did she really mean to say that? For I immediately, said out loud, “ you don’t think that Yellen is greasing the tracks for a halt in the tapering do you?
It sure sounded like that to me, what about you? OK, there’s more from Yellen… she was emphatic that “slow wage growth suggests that there is “more work to do” Of course if I were in the room, I would be raising my hand, and carrying on like Arnold Horshack (Ooh, Ooh, call on me Mr. Kotter, call on me!) and when she finally had the nerve to call on me, I would ask, could you explain in detail what “more work to do” really encompasses? Please? Pretty please, with sugar on top?
Oh well, I would never get the opportunity to put a central banker’s feet to the fire, and I guess that’s better for all of us that I don’t, because I can see the “authorities” grabbing me, and violently putting my arms behind my back, and walking me out of the room, and then taking me to a dungeon where I would never be heard from again! OK, I guess I had better say that while that would be better for you, but not for me!
In the end, of course, during the March FOMC meeting, they will taper again, for it’s too soon for the Fed Heads to see the writing on the wall , folks…
But that’s what started this run to 1.38 for the euro this morning… The last time the euro climbed to 1.38, we had European Central Bank (ECB) President, Draghi, give us a surprise rate cut, which deep sixed the euro’s rise, and saw it drop all the way back to 1.35. The single unit has taken each step slowly back to 1.38… I wonder what Draghi has up his sleeve now?
Staying close to the region, Sweden posted a strong 4th QTR GDP number this morning, and that has the krona firmly on the rally tracks. Swedish 4th QTR GDP printed at +1.7%, beating the consensus call for +.6%… And VS last year, Swedish GDP is up 3.1%! So, now you can see why the krona is firmly on the rally tracks, as this report might be the straw that stirs the rate hike drink in Sweden… And maybe not, but at least traders are liking krona this morning!
With the krona pushing the appreciation envelope this morning, the Norwegian krone is going along on the ride of the euro and krona’s rallies. The euro influences the krone more than the krona does, but with both of them firmly on the rally tracks, it’s double the fun for the krone, which is actually ready to fall back below 6, which would be the first time it traded with a 5 handle in a month of Sundays! (remember krone is a European Priced currency, so as the price falls, the greater the return in dollars)
The Commodity Currencies this morning are not trading in unison… The Aussie dollar (A$) is down, as it was announced yesterday that Qantas is laying off 5,000 people. Another blow to the Aussies. The Canadian dollar / loonie is flat. Yesterday, I told you to watch for the Canadian Current Account Deficit, to see if it widened from the previous print of C$ 15.5 Billion.. The markets were expecting an increase to C$17 Billion… But… the Current Account Deficit only widened to $16 Billion in the 4th QTR! So, much better than the markets were forecasting, eh? The Canadian dollar / loonie tried to rally on the news, but… it was not meant to be for the loonie on Thursday… And finally, the New Zealand dollar / kiwi, is rallying, and is trading with an 84-cent handle this morning… A report overnight from ANZ, claimed that N.Z. Business Confidence rose to near a 20-year high… That was enough for traders to forget all about that report that I told you about earlier this week, where the fund manager was probably talking his book…
With the euro so strong this morning, it gives the Swiss franc room to rise too. The franc is a strange bird ever since the Swiss National Bank (SNB) tied the franc’s cross with the euro to a floor level of 1.20… The franc now gains when the euro gains, and loses ground when the euro loses ground, as if they were pegged together… Yes, they are in a way, but not truly, not like the euro and the Danish krone. Anyway, the franc is stronger today and trading with a $1.13 handle, so if you’re on my bandwagon that thinks the euro will do well this year, the franc will follow along…
Yesterday, I missed a rate hike for you… But I’m sure you can guess which country’s central bank decided to hike rates again… That’s right, Brazil… This time the Brazilian Central Bank (BCB) only hiked rates 25 Basis Points (1/4%), but left the door open for another rate hike in April. The real saw some room to rally yesterday, on the rate hike announcement, but as far as the real is concerned, it is finding it more difficult all the time to squeeze out gains on the BCB’s rate hikes… Interest rate differentials for Brazil, just don’t seem to carry the weight they used to.
Another tourniquet was brought out and wrapped around the Chinese renminbi / yuan overnight, as the bleeding in the currency had been able to seep through the previous tourniquet. There are so many “experts” out there with their 2-cents on what’s going on with the renminbi / yuan… I hear that James Rickards has even begun to tell people that the Chinese financial system is going to collapse… Look I like James Rickards, and think he’s probably one of the smartest dudes on the planet, but I have to disagree with him on this one…
The so-called experts are too many to name, but you all know who they are, have been calling for a collapse of China for years now, but it hasn’t happened… And I don’t believe it will happen this time… I was talking with the Big Boss, Frank Trotter, yesterday telling him this scenario, and he reminded me that with these guys calling for a collapse every year, that eventually they may be right, and they’ll say, “see I told you so”… Remember a lot of these same guys said the euro would collapse and the Eurozone would break up 3 years ago… So, be careful writing off China, folks… I think that as long as they have a Treasure Chest of reserves, they’ll be able to keep their ship out to sea…
Gold is down a buck or two this morning… But there was an interesting report that came out yesterday, that supports further gains in the shiny metal. The World’s largest gold-backed exchange Traded Fund (ETF, paper trades), New York’s SPDR Gold Shares, is on track for its first monthly inflow of metal in more than a year! So, most likely, February will be the first month to show an increase since December 2012… If the fund is seeing an inflow of metals, it means that there are more buyers than sellers, and the Fund has to increase its holdings to match (supposedly, right?) the buys…
Of course I would prefer to see the buyers of ETF’s buying physical Gold, but at least they are jumping on Gold’s bandwagon again…
In addition, I found an interesting story on Google+, that was posted by Koos Jansen, that was posted on the In Gold We Trust website… Here is Koos… “in 2013 we’ve experienced what kind of extreme buying power China is able to unleash on the physical Gold markets. Chinese wholesale demand in 2013 was 2,200 tons, and this excluded PBOC purchases.”
Yesterday, the U.S. Data Cupboard printed a weak Durable Goods Orders for January with a large downward revision from December’s print. Durable Goods Orders for January were down -1%, following a downward revised -5.3% decline in December. (originally reported as -4.3%). And January’s decline in shipments of core nondefense capital goods was very disappointing falling -.8%… This feeds into the capital expenditures folks.. and remember what I told you yesterday about capital expenditures…
Today’s U.S. Data Cupboard, will finish the week with the 2nd revision to 4th QTR GDP… Remember, that the initial print had 4th QTR GDP at +3.2%, and had everyone singing along and tapping their feet to the song, “We’re in the money, we’re in the money, we’re in the money, the skies are sunny…” But then along will come the realization that the revisions to the 3.2% figure are going to be harsh… And so, it will be today, as I truly expect 4th QTR GDP to be downwardly revised to somewhere near 2.5%… I wonder if the singers will be reprise their we’re in the money song…
We’ll also see Personal Consumption for the 4th QTR, which will probably be less than the 3rd QTR’s percentage gain, The Chicago Purchasing Manager’s (manufacturing) data, the U. of Michigan Confidence and Pending Home Sales… So, a lot on the markets’ plate today to deal with…
For What It’s Worth… Well, have you seen or heard the warnings from a fund manager that believes he knows that the Treasury will “choose the lesser of two evils” and announce this market crippling change on June 17th? It’s one of those “end of the world” type things that go on and on explaining why you should listen to him, and all his claims of warning people about this and that in the past… I hate myself when I foolishly click on one of these things, that the publishers send out in waves. And this one was no different…
Basically, the guy might have something very important to tell us, but he’s not going to tell us in the video! You have to sign up for all his publications, and blah, blah, blah.. I’ll keep his warning in mind though… June 17th, the U.S. Treasury is supposed to cripple the markets…
OK… I’ve got to move along here before I say something that doesn’t taste so good later… Remember always keep your words soft and sweet so that they’re easier to eat later… HA! I have to tell you about a funny cartoon I saw this morning on Ed Steer’s letter… It’s a bucket of chicken eggs, with a sign attached to the front of the bucket that says: Boneless Chicken 35 cents… HAHAHAHAHA… What good way to finish the week, eh?
To recap… The euro has soared overnight back to 1.38, but the rise began yesterday when Janet Yellen was speaking and putting questions into the minds of the markets, which got the dollar taken to the woodshed… Eurozone inflation was stronger than the expectations, and that allowed the euro to add to yesterday’s gains. Swedish GDP was better than expected, and the krona took off. With both the euro and krona firmly on the rally tracks, the Norwegian krone joined in and is nearing trading with a 5 handle. The Data Cupboard printed more weak data from the U.S. yesterday, and the Gold ETF is seeing the first month of inflows since December 2012.
Currencies today 2/28/14… American Style: A$ .8950, kiwi .8410, C$ .8980, euro 1.3805, sterling 1.6710, Swiss $1.1345, … European Style: rand 10.7235, krone 5.9970, SEK 6.4175, forint 225.22, zloty 3.0230, koruna 19.8125, RUB 36.15, yen 101.90, sing 1.2670, HKD 7.7610, INR 61.75, China 6.1214, pesos 13.25, BRL 2.3180, Dollar Index 79.89, Oil $102.05, 10-year 2.66%, Silver $21.30, Platinum $1,448.14, Palladium $742.15, and Gold… $1,328.49
That’s it for today… Tomorrow will be our colleague Ty Keough’s, 10-year anniversary at EverBank World Markets! Congratulations Ty! Last night Ty was honored here in St. Louis, as one of the original members of the indoor soccer team, The Steamers. I remember, going to Steamers games and watching Ty play 30 or so years ago. He is a soccer legend and sits right here 10 feet away from me! Today, the 28th, is my older sister’s birthday… Happy Birthday Barb! When we were kids, I used to call her: Barbie Doll… I don’t get to see Barb much any longer, but I always have the memories of us growing up together! (along with my 5 other siblings!) Our St. Louis U. Billikens Basketball team’s winning streak was stopped last night at 19, as they lost their first game since December 1! UGH! And they lost at home… That’s not a good thing, but I think they were caught looking ahead to going to VCU this weekend for a big game… They’re still in first place in their conference, so not all was lost! Sunday we’re supposed to get hit with a HUGE ice storm, which will make getting to work on Monday, interesting… The boys and girls on the desk will have their final weigh-in this morning, and a winner will be crowned as the Biggest Loser… I’m proud of them for sticking with their challenge, but also glad this is over! My beautiful bride is getting out of Dodge just in time tomorrow, and heading South. So it will be just the “boys” at home for the next 11 days… I don’t know how we’ll get along without Kathy, but we’ll manage somehow! HAHAHAHAHA! And with that… I thank you for reading the Pfennig, and hope you have the opportunity to make this a Fantastico Friday!
Chuck Butler
President
EverBank World Markets
Editor of A Pfennig For Your Thoughts
1-800-926-4922
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