In This Issue.
* Brazil hikes rates 50 Basis Points!
* Poland cuts rates 25 Basis Points
* Euro in free fall.
* China touts renminbi as “The World Currency”.
And Now. Today's A Pfennig For Your Thoughts.
ECB To Announce Details Of QE.
Good day.. And a Tub Thumpin' Thursday to you! I don't feel much like Tub Thumpin' right now. In fact, I almost made a call to the bullpen this morning. But today is a lot like most days, I'll soldier on, and eventually I'll feel better. Todd Rundgren greets me this morning with his song: It Wouldn't Have Made Any Difference. Todd had a couple of other songs that are better known, but this one is my fave from him. All the focus in the markets has already shifted to tomorrow's Jobs Jamboree. UGH! Let's listen to the words of Todd Rundgren when we think of the Jobs Jamboree. Well, it wouldn't really make any difference..
I'm sorry, but that's how I feel about the monthly BLS (bureau of labor statistics) print of jobs created for the previous month.. The BLS doesn't count widgets the same way you and I do, and therefore I say it's all hogwash, but the markets are still enamored with the BLS print, so I have to pay attention to it. UGH! And I may be ahead of myself a little with the statement that the focus has already shifted to tomorrow's Jobs Jamboree. We have the European Central Bank (ECB) meeting to get through this morning first. This is the meeting that the ECB President, Mario Draghi will announce the details of his all-out Quantitative Easing/ QE..
And my question of the other day, when I asked if all the bad stuff associated with QE had been priced in the euro already, has been answered in the last 48 hours, as the euro has been in a free fall.. in that time frame. Don't peek at the currency roundup! I'll tell you right here, right now that the euro is trading with a 1.10 handle at 1.1050 this morning. That sure looks strange to me. Next stop? Parity? I wouldn't bet against it, all you have to do is go back and see how badly the dollar was beaten about the head and shoulders from March 2009 to the “discovery” of Greek debt being too large, to see the damage a major currency goes through when QE is a part of their monetary policy. Going into today's ECB Meeting, we already know the broad strokes of Draghi's plan to buy EUR 60 Billion of bonds each month until they have 1. Ruined the value of their currency, and 2. Bloated their balance sheet to levels that would rival the U.S. Fed's Balance Sheet.
I read on the Bloomberg yesterday that Goldman Sachs thinks that the euro will fall to 90-cents in 2016. OUCH! Now that's going to leave a mark! I sure hope that's not the case, although, I'm reminded of how when Goldman Sachs says something, they make sure it happens. Or at least it seems that way. I sure would like to have that kind of power over the markets.. That would be Tre' Cool! Or maybe it would be a curse? Oh well, either way, I don't have it, and Goldman Sachs does!
So with the euro in a free fall right now, the other currencies are finding it to be very difficult to carve out a gain VS the almighty dollar. One currency that is bucking the dollar strength is the Canadian dollar / loonie. The loonie got a BIG lift yesterday that has carried over to this morning, when the Bank of Canada (BOC) left rates unchanged and said that they see inflation risks as more balanced since they cut rates in January. That's a good thing to hear from a Central Bank, that they believe the risks are balanced for when they are there's no need to move interest rates. Let the markets work out the excesses, and so on.
Another thing weighing on the euro this morning, is the weakness shown in the latest Factory Orders data. German Factory Orders fell in January -3.9% from December.. Now, calmer heads would look at this print and say, but.. .The data since January has ticked up so, this is old news. While the hot heads look at this print and say, there's a weak spot in the recovery. I find it interesting that a weak Factory Orders print here, causes euro weakness, but a negative Factory Orders print in the U.S. gets shrugged off because the Fed says the economy is recovering so well that they will have to raise rates soon. As IF!
Well, I told you a couple of days ago, that Brazil would probably hike rates again at this week's Brazilian Central Bank (BCB) meeting. And that's exactly what happened yesterday, the BCB hiked rates by 50 Basis Points (1/2%) to bring their internal rate, which they call the Selic Rate to 12.75%… WOW! But it didn't stop the bleeding in the real. At what rate will it stop the bleeding? Only the Shadow Knows.
And a Central Bank that we don't talk about much, the Polish Central Bank (PCB) cut rates yesterday, 25 Basis Points (1/4%). Bringing their internal rate to 1.5%… Now that's crazy isn't it? An Emerging Market without a risk premium to pay to lenders? I'd say it is.. But it is what it is, and that's the state of things today.
Well, it was widely expected, but that doesn't always mean it will happen, but this time it did. China moved their forecast for Growth down to 7% from 7.5%… Come hell or high water, the Chinese will see to it that 7% is achieved, you can bet your sweet bippie on that! The renminbi /yuan is a tad weaker this morning. I had a dear reader sent me a picture of a billboard that the writer of the article encountered after landing in Thailand. As he left the airport, there was a HUGE Billboard announcing the RMB (renminbi) as The World Currency. Well, apparently that's how the Chinese Gov't thinks about their currency. The writer goes on to talk about how China is in deep dookie right now with their economy, but, these are things that countries go through valleys and peaks. Sound a lot like what I always tell you, eh?
You know.. I've talked at length about China and what their plans seem to be per my opinion, and it occurred to me the other day, that I had been missing something that I should have pointed out many moons ago. the fact that China has been working so diligently on the currency swap agreements with countries that remove the dollar from the terms of transaction. That's a given, but what I didn't follow up on with you, is that now that they have these countries accepting renminbi / yuan, the Chinese need to make certain that the renminbi / yuan remains “stable”, otherwise, these countries that accept renminbi will just unload it immediately, and that's not what the Chinese want. They want these countries to hold large sums of renminbi in their reserves, this is one of the key steps toward the float of the renminbi, and moving it toward the head of the class for reserve currencies.
Recall about a month ago, I talked about how I thought Denmark was greasing the tracks for dropping the peg to the euro? Well, that thought caught on and a lot of “hot money” flowed into Denmark in anticipation of a drop of the peg. Well, I read earlier this morning, that the “hot money” was giving up and leaving Denmark. So soon? Did you guys really think that something like this would happen overnight? I mean just because the Swiss National Bank (SNB) threw a cat among the pigeons when they came out of left field to announce that they had dropped their peg on the euro cross, doesn't mean the same thing would happen in Denmark. I'm going to continue to keep a light on for this thought.
It was kind of a nothing gained, nothing lost day for Gold yesterday. The shiny metal traded up to $1,208 and as low as $1,197. there are some cents on those prices, but I rounded them to the whole dollar. There wasn't much going on to really put wind in the sails of Gold, yesterday, but today, we could very well see Gold get some wind in its sails, given the ECB QE meeting. But when you think about it, Gold doesn't really have to move to gain in value VS euros, with the euro in a free fall.
The other precious metals of Platinum and Palladium are sure being volatile these days, with wild swings going both ways in both metals.. yesterday was not one of those volatile days, so that was good, as they added a couple of bucks respectively. I saw the other day that new vehicle sales here in the U.S. are still strong, but printed weaker last month than the previous month and the expectations. Both of these metals are used in catalytic converters, so new car sales are important to them.
The U.S. Data Cupboard had the Fed's Beige Book to deal with yesterday, and in the Book there was little change from the previous month's book, and the Fed regional presidents still think that there will be continued expansion in early 2015.. Hmmm. Where's the Beef? No really, Where's the Beef? Someone needs to gather up the first 3 months to date, of economic data, and present it to these regional presidents, to show them there has been no “continued expansion” in the early part of 2015, and if there's been anything, it's more like a contraction, not an expansion. So, wake up! Come on sleepy head, Wake Up!
The U.S. Data Cupboard today, might be snowbound. Yes, that's right, a message on the Bloomberg tells me that weather in Washington D.C. might delay data releases.. Too bad that won't be the case tomorrow for the Jobs Jamboree! But anyway, we do have some data today, like Factory Orders for January. Remember, December's print was a negative -3.4%, and then the usual Weekly Initial Jobless Claims will also print today.
For What It's Worth.. Well, since I spent a few extra minutes on China today, I thought that this would play nicely in the sandbox with those earlier thoughts. You can read the whole article here if you so wish to do so: http://www.shanghaidaily.com/business/finance/Securitization-seen-to-double-this-year/shdaily.shtml
“CHINA'S nascent securitization market may double this year as the regulator simplifies issuance procedures and falling interest rates will support investment demand, Moody's Investors Service said yesterday.
Securitization refers to the practice of pooling debts like mortgages, auto loans, credit card debts and corporate loans to a third party as securities.
China launched the practice in 2005 but stopped it on risk management concerns during the 2008 financial crisis as opaque operations in the US securitization market caused great losses to investors and a triggered global turbulence.
China allowed the practice again in 2012 and the interbank securitization market boomed in 2014 to 280 billion yuan (US$45 billion) from about 16 billion yuan in the previous year.”
Chuck again.. I've explained before that the opening up of the Chinese capital markets to outsiders is an important step in the goal to remove the dollar as the reserve currency. So, we're beginning to see signs that this is going to take shape this year, into next year.
To recap. First the ECB announcement of the details of their all-out QE, and then all focus will shift to tomorrow's Jobs Jamboree. The euro is in a free fall and dragging most currencies through the mud with it. The Canadian dollar / loonie is bucking the trend, as the BOC left rates unchanged yesterday and said that the risks were balanced, something every Central Bank would love to be able to say! Brazil hike rates 50 Basis Points and Poland cut rates by 25 Basis Points. Gold saw a nothing gained nothing lost day, and Chuck takes issue with the Fed's Beige Book findings.
Currencies today 3/5/15. American Style: A$ .7810, kiwi .7510, C$ .8045, euro 1.1060, sterling 1.5245, Swiss $1.0335, . European Style: rand 11.7725, krone 7.7295, SEK 8.3370, forint 276.30, zloty 3.7440, koruna 24.7940, RUB 61.26, yen 120.15, sing 1.3685, HKD 7.7555, INR 62.16, China 6.1528, pesos 15.09, BRL 2.9910, Dollar Index 96.15, Oil $52.02, 10-year 2.12%, Silver $16.19, Platinum $1,181.23, Palladium $826.58, and Gold. $1,201.15
That's it for today. Well, a I've been up for almost 3 hours now, and I'm beginning to feel better, so I have that going for me! The sun is rising and it looks like it will be another beautiful day. I told you a couple of months ago, how I was trying to be more active and walking around the small lake we have close to us here. But then my “good hip” began to give me trouble, and so I stopped for a few weeks, and then with the pain subsided, I decided to get back to walking yesterday. OMG! I was knocked on my derriere! You know me, I didn't take it slow and just try to get back to where I was. And I paid the price! Pink Floyd is playing their song: Shine On You Crazy Diamond, Parts 1-7 on the iPod right now, it's 17 minutes long, so it will still be playing as I send this out to be reviewed! The Cardinals start their Spring Training Games today. YAHOO! They are the away team today, and the first home game is tomorrow! Our Blues play the Flyers tonight in Philly. I remember the time many years ago, when in Philly the fight on the ice turned into Blues players going into the stands after people that threw stuff at them. Ah, the boys just got a little wound up on a Saturday night, eh? Alrighty then, time to go! I hope you have a Tub Thumpin' Thursday!
EverBank Global Markets