In This Issue.
* Day 2 for Yellen, no changes.
* N.Z. posts Trade Surplus!
* Chinese announce new plans to help economy.
* German Unemployment drops by 20,000!
And Now. Today's A Pfennig For Your Thoughts.
Gold Shines Brightly On This Tub Thumpin' Thursday!
Good day.. And a Tub Thumpin' Thursday to you! Well, as I crawled into bed last night, I said to myself, “boy, I sure could use a good night's sleep tonight”, and I got one! YAHOO! So, maybe that's the trick, put the idea in my head, and see what happens.. That's the ticket! Steely Dan greets me this morning with their great song: Aja.. What a great album of the same name that was/ is still today. My good friend, Duane, is a huge Steely Dan fan, and when the music is playing on the Butler patio, he's always requesting a song or two by Steely Dan.
Well, the dollar selling that began with the final words of Janet Yellen's testimony on Tuesday, continued throughout yesterday, and in the overnight markets. Some of the currencies, like the Aussie dollar (A$), N.Z. dollar / kiwi, Russian ruble, S. African rand, Brazilian real, that have positive rate differentials VS the dollar, are rallying on the thought that their differential will remain in place for now. Other currencies like the euro, are rallying because of good economic data that printed on their behalf. So, let's look at that first and then move along..
The euro has received a hand basket full of good news this week, and has reacted positively, but the positive reaction has been muted, as if it has a governor placed on it. You know, I use that term a lot, and it just occurred to me that the youngsters that read this letter, have no idea what that means, unless they've Googled it, which is the answer to everything these days. No longer does anyone have to wonder what the answer is, all they have to do is Google it! OK, so back to the euro. This morning, the good news came in the form of a better than expected German Unemployment report. The total of unemployed Germans dropped by twice the expected amount in February for a total of 20,000, which kept the Unemployment rate in Germany at 6.5%..
Germany's economy has weathered the storm, and the lower Oil prices are helping the economy quite a bit, even though it adds to the deflationary environment, that the European Central Bank (ECB) is so frightened of. I so wish that one could simply just buy Germany. But you can't. when you buy euros, you get all the black sheep of the family coming for Sunday dinner. Ain't that a shame. My tears fell like rain. Ahhh, Fats Domino on a Tub Thumpin' Thursday! You can't beat that with a stick!
It was Day Two of Janet Yellen's trek to Capitol Hill yesterday, and that brought about no changes to her talk on Tuesday, that got the markets all riled up. It was a repeat performance of Tuesday for Yellen. You know yesterday, I attempted to take all the words Yellen used to describe the Fed's stance on rate changes, and make them understandable. I'm sure it was her wish that the markets all just settle down about a rate hike in June that many not come, and if that's the case, well, she accomplished what she set out to do. That is, once everyone figured out what it was she was saying. Hey! I never said that the Markets participants are rocket scientists! HA! No the rocket scientists are in the back room of investment houses, brewing up the next, “no lose”, investment idea/ derivative.
The one thing for sure that I know and see that Yellen's testimonies accomplished was getting the 10-year Treasury yield back below 2%… (1.95%) Now, we can't have the 10-year Treasury, that's used as the pricing mechanism for mortgage rates, rising, now can we? That would leave a mark on the housing sector, and we certainly can't have that! Yes, I'm being a real smart alec right now, and I think I had better stop, before I type out a rant that has to get cut and left on the reviewer's floor.
So, yesterday, I told you how the N.Z. dollar / kiwi was the best performing currency overnight, and last night and this morning, it has continued to add to those gains. Last night N.Z. received the print of their latest Trade Balance, and believe it or don't, but N.Z. posted a Trade Surplus in January! This is the lowest Trade Balance since June 2013. The thing you have to be suspicious of here is that imports were weak, and that doesn't bode well for the domestic economy, but on the other side exports were better than expected, so they offset the weak imports sector. All-in-all, a good outcome for kiwi, and the currency has responded accordingly, trading back to 76-cents this morning..
Across the Tasman, Australia printed their 4th QTR CAPEX (capital expenditures, which I always tell you to watch as this is a key to any economy) and the print was not good. 4th QTR CAPEX fell -2.2% which was worse than expectations at -1.6%… the 3rd QTR CAPEX was revised upward from .2% to .6%, so maybe there will be a positive revision to this data down the road. The A$ just let this data slide off its back, or shrugged it off, as traders like to say, and went ahead to rally beside kiwi this morning.
We'll get CAPEX data here in the U.S. today for January. Leading up to January, the previous months' CAPEX prints left a lot to be desired, and while the January CAPEX print might be positive for once, it won't be very strong, and that will once again signal to me, and should to the markets and the Fed members that this economy is weak kneed.. The Bond traders know it, and I have to believe that the Fed members know it. At least I sure hope they do, because a rate hike right now would be a tough pill to swallow for the economy.
Well, the Russian ruble is posting another strong rally this morning, although it was stronger when I first turned on the currency screen this morning. the beleaguered currency has a very long way to go, which is going to be a tough row to hoe, before it recovers all its losses. Last June, the ruble was trading with a 33 handle, and now it's finally back to a 60 handle, after seeing the dark side of an 80 handle in December. How long will it be before the economic sanctions that the Eurozone has placed on Russia are relaxed, now that a peace agreement has been in place for nearly 2 weeks? This is key for not only the Russian economy but also the Eurozone economy. So, come on folks, what are you waiting for?
So, I guess the Chinese didn't just sit around eating chocolate bonbons and watching Oprah, while they were out last week, for they came back to work, loaded for bear! The Chinese State Council announced yesterday that they were going to step up fiscal policy support and strengthen targeted controls to combat downward pressure on the economy. A package of tax breaks for small businesses, a reduction of the unemployment insurance tax, which will save businesses over 40 Billion renminbi / yuan annually, and a pledge to speed up construction of major water projects in the less developed central and western regions, are the highlights, and there are more projects in the package that was presented by the State Council.
The renminbi / yuan was allowed to appreciate by a small amount overnight as this package of stimulus and tax measures was announced. I like that the Chinese came back ready to tackle the slowdown in the economy. But I have to think that the economy would be just fine without the boost.. But you have to remember that 1. The Chinese have a treasure chest of reserves in which to spend on the economy, and 2. They have to keep the economic ship out to sea, in order to maintain peace in the country.
While we're hanging around Asia.. Singapore received some bad economic data last night in the form of Industrial production (IP) that fell from the previous month and annually by a large amount, thus surprising the markets by the weakness in IP. Apparently momentum has faltered here, and the Monetary Authority of Singapore (MAS) were correct last month, when they decided to not widen the Sing dollar's (S$) trading band. Suddenly, inflation is not a problem in Singapore, and therefore the MAS doesn't need a stronger S$ to combat inflation that isn't there. the deflation bug has landed on Singapore's shores, and spread quickly. the bug originated in Japan, folks.
Speaking of Japan. this basket case of a country, has been pretty quiet lately. And the Japanese yen has benefitted from this quietness. Now, don't get me wrong here, I'm not saying that yen is about to go on a rally to the moon. I'm just talking about this brief little rally while things are quiet in Japan. That'll all change soon enough, it always does with the Japan…
Well, coming back closer to home, Canada will print their January CPI (consumer inflation) today, and it's expected to print around 2.1%, thus a notch above the Bank of Canada's (BOC) inflation target of 2%.. BOC Gov. Poloz has been dangling a rate cut in front of the markets like a carrot on and stick, but a CPI print of 2.1% will not help him one iota. And he'll have to put the stick and carrot away for another month. So watch this data print closely, because if Canadian CPI would happen to fall below 2%, Poloz will be dancing in the street, because he'll get to cut rates again, and knock the stuffing out of the Canadian dollar / loonie.
Speaking of CPI. We might as well head to the U.S. Data Cupboard and see what it has for us today. Open it up and WOW! It is stocked! First up is the stupid U.S. CPI, which will most likely print a large negative number that will all but nail down the Fed to not hiking rates in June at this point. Next up is real data, as U.S. Durable Goods Orders print for January and is expected to finally print a positive number, after 3 previous prints that were devastatingly disappointing. Then the usual Tub Thumpin Thursday print of Weekly Initial Jobless Claims, the 4th QTR Home Price Index, and Bloomberg Consumer Comfort index.
Yesterday's Data Cupboard had January New Home Sales, which edged downward by -.2%… I suspect this data to be back and forth in 2015, as rate hike talk slows things down, only to be reversed when the rate hike doesn't happen. Back and forth, a real wishy-washy year for New Home Sales, in my opinion, which could be wrong, of course!
I went nearly the whole letter and didn't mention the $12 gain in Gold this morning! Silly me. I was thinking that I shouldn't get all lathered up over a nice gain like that early in the morning, before the NY traders arrived at their desks, and “took care of that little problem”. But then I got here and it was still there, and I thought. Oh well, at least it was a nice gain when I was writing the Pfennig! But with Yellen reinforcing her talk from Tuesday, Gold was able to take advantage and move past $1,200 yesterday, and then add another $12 this morning. My spider sense is tingling right now. I wonder what's up here?
Yesterday I highlighted the fact that Palladium had made one of its legendary “jumps” , and today it's Platinum's turn, as it hangs a $20 gain on yesterday's figure.
For What It's Worth. Well, my friends Dave Gonigam and Addison Wiggin over at Agora's 5 Minute Forecast were kind enough to quote me in their letter yesterday and use some of the stuff I said about Yellen's testimony. I love it when I see my name up in lights!
On a sidebar, I picked up a book in the library here in the building the other day, and began reading it, and one of the principal characters in the story is guy named: Charles Butler.. Now How about that!
Well, I thought I would return the favor to by friends over at the 5 Minute Forecast and reprint something they had in their letter yesterday. This is a note that Addison Wiggin printed 5 years ago from someone in China. Now remember this is 5 years ago in China.
“What people fail to grasp,” this individual wrote, “is this place is much more capitalist than the States now:
. No capital gains tax
. No property tax
. No local or state taxes
. A reasonable 35% tax rate for the highest earners
. Corporate tax rates of 0% for three years and 15% per year after that.
“Also, most importantly, it's not a casino economy like the States. China will sell 30% more vehicles this year than in the U.S, and 93% of those vehicles will be purchased cash up front.
“For a home loan, you need 30% down. As a private business, to get a loan, you have to put up the assets of the company, i.e., plant and equipment. There are no leverage games here.
“It's a one-party state, but at least it is focused on its own people. We have a two-party system that has sold us down the river. All the Asian Tiger economies needed a strong central government to launch themselves out of poverty. Not a good system for our culture, but it works for them.
“High-speed train systems going on line, 50 new airports in that last five years — you must see this place to believe it.”
Chuck again. Yes, and there are still naysayers about China's economy and the direction of the country.. That's amazing to me for sure!
To recap. Yellen speaks again, no changes to her first testimony, so the dollar selling continues. the positive rate differential currencies put in the best performances overnight, and the euro rallies on good labor data from Germany. New Zealand posts a Trade surplus, which is strange for them, and Australia prints weak CAPEX data but shrugs it off and the A$ rallies. Gold is up $12 this morning, and China announces new plans to stimulate economy, Chuck sure hopes they don't start down the path well beaten down by the Japanese.
Currencies today 2/25/15. American Style: A$ .7905, kiwi .7600, C$ .8030, euro 1.1360, sterling 1.5510, Swiss $1.0540, . European Style: rand 11.4055, krone 7.5500, SEK 8.3020, forint 267.05, zloty 3.6640, koruna 24.2020, RUB 60.47, yen 118.80, sing 1.3505, HKD 7.7545, INR 61.75, China 6.1379, pesos 14.85, BRL 2.8450, Dollar Index 94.28, Oil $50.58, 10-year 1.95%, Silver $16.82, Platinum $1,190.88, Palladium $811.25, and Gold. $1,218.10
That's it for today. Well. the first full squad workout of Spring Training for my beloved Cardinals took place yesterday. Next Saturday, is the first home Spring Training game of 2015 for the Cardinals. Spring Training games are impossible to fill in a score card, because there are so many changes with players, pitchers, positions, etc. so, you just go and enjoy the beautiful day, the sounds, the smells and baseball.. Can you believe that February is almost over? The month flew by like the wind. I sure hope March lasts a lot longer! The other night my beloved Missouri Tigers finally stopped their 13 game losing streak and beat the mighty Florida Gators! And the St. Louis U. Billikens are looking to win 2 in a row! Maybe things will look brighter for these two schools' beleaguered basketball teams heading into March.. Jimi Hendrix is playing: All Along the Watchtower on the iPod right now. And that tells me that the watchtower has struck the bewitching hour of when this needs to get out of here! So, make sure you go out and have a Tub Thumpin' Thursday!
EverBank Global Markets