In This Issue.
* Yellen throws a changeup.
* Chinese return to work with a weaker renminbi.
* Chinese PMI's rise above 50!
* Gold shows how rate sensitive it is.
And Now. Today's A Pfennig For Your Thoughts.
Kiwi Puts On A Show.
Good day.. And a Wonderful Wednesday to you! Well, I lived through my initiation to the “cool drink club” last night. There I sat with my new friend, Gus, sipping on a vodka martini, and imagined myself at the bar with cool guys, like James Bond, and Dean Martin. fun stuff, for sure, but I can tell you straight from the heart that I'll not be ordering up any martinis any time soon for me! Jesse Colin Young, and the Youngbloods with their song: Let's Get Together, greets me this morning. Come on people now, smile on your brother, everybody get together, try to love somebody right now. Now there are words to live by!
Front and Center this morning, the currencies have fought back VS the dollar and are no longer clinging to the ropes with their rope a dope routine. What brought about this change in direction? Janet Yellen. I told you yesterday that there was risk to what everyone and their brother was thinking that she would say, if she didn't say it. And in so many words, she didn't say it. So, let's gather up all our belongings, tidy up our work space, pour a cup of coffee, and settle into a chair. All good now? Ok, here's the skinny on Yellen's talk yesterday, brought to you by your friendly neighborhood Pfennig scribe!
Well, what do we have here? I sat by my laptop most of the morning yesterday hoping to catch the market's reaction to whatever it was that Fed Chair, Janet Yellen, had to say, either way, win, lose or draw. And the winner was. draw. She neither sounded hawkish or dovish.. She sounded, well, like someone that just doesn't have a clear picture of what they want. let's listen in. “It is important to emphasize that a modification of the forward guidance should not be read as indicating that the committee will necessarily increase the target range in a couple of meetings. Instead, the modification should be understood as reflecting the committee's judgment that conditions have improved to the point where it will soon be the case that a change in the target range could be warranted at any meeting.”
OK.. here's Chuck's interpretation of what she said, without saying it. You all are thinking that we'll hike rates in June. But I'm here to tell you that we won't be tied to any particular meeting, and we reserve the right to change when we feel it's necessary. Wouldn't that have been much easier to say and understand? Well, Big Al Greenspan brought about what they called “Greenspeak” , Ben Bernanke didn't have a word for what he spoke, unless you ask me on the Butler patio, and now Janet Yellen is soon going to have her own word for her speeches. But the thing I took from this testimony yesterday is simply now she's given the Fed and her an “out” and they won't have their feet held to the fire for not hiking rates in June. Pretty sly about it, but I see it for what it is, and I only have one eye! Yes, they can drag this ZIRP (zero interest rate policy) out till the end of time.
Yellen tried to offset this new rate scenario with upbeat talk about the economy. Huh? I would have thought that she would use this opportunity to tie the weakening economy with her decision to not be tied to a June rate hike. But, that's just me I guess. it's what I would do if I were Fed Chairman!
So, as I said above, this talk and feeling that the rate hike is being delayed, really sent the dollar to the woodshed, and then this selling of the dollar continued throughout the overnight and morning sessions. One exception to the currency rally was the Chinese renminbi / yuan. The Chinese had been on holiday for the last week, and therefore they had some catching up to deal with all the dollar strength during that same time period. There was some good data from China overnight though.The flash PMI (manufacturing index) rose to a 4 month high of 50.1 VS what the experts were thinking would be a 49.7 print. There was some rot on the PMI's vine though, as the new export orders component fell from 50.1 to 47.1, the sharpest rate of contraction in almost 2 years.. So, we need to keep an eye on that going forward.
As we near the end of the month, another one bites the dust, yeah, another one bites the dust, I thought I would look at the month in the currencies and see what currency outperformed all the others VS the dollar. And that currency in February would be the New Zealand dollar / kiwi! Despite all the dissing of the currency from Reserve Bank of New Zealand (RBNZ) Gov. Wheeler, and despite the fact that the RBNZ sold more than 16 million kiwi during the month, kiwi has weathered the storms created by the RBNZ, and other countries that just keep lining up to cut their interest rates, and found a 3.8% gain VS the dollar this month.
RBNZ Gov. Wheeler, tried to stop a kiwi rally in its tracks last night, by telling reporters that Auckland has a housing supply shortage, which is causing house prices to rise. But it didn't have the same effect on kiwi as some of his other well-known disses of kiwi. Wouldn't it be nice if we were older then we wouldn't have to wait so long. No wait! I wanted to say wouldn't it be nice if kiwi built up a suit a armor that would reject Wheeler's words? Now that would be Tre' Cool!
And in another follow up to my Sunday Pfennig piece on the pound sterling two weeks ago. Bank of England (BOE) Gov. Carney, was talking last night, and there are times you wish so badly for someone to stop talking, and this was one of those times. He first mentioned that “Our job as the Monetary Policy Committee is to bring inflation back to the 2% inflation target, and we will do so in a reasonable horizon.” OK. that sounds fine, but then he went on to say, ” That horizon, given the wave of shocks hitting the economy at present, should be within the next 2 years.” Wait! What, what? It's going to take the BOE up to 2 years to get back to 2% inflation? That's not going to help the pound any, as to achieve that goal interest rates will be required to remain near zero.
So. The Eurozone leaders accepted Greece's homework assignment, and all's well in the Eurozone again, at least for now. Soon, everyone will be pointing to June as this will be the ending month of the extension that Greece bargained for to continue their current loan agreement. The euro is stronger this morning, but I would have expected a bigger bounce from not only the Greek debt problem not coming to an acrimonious head, and Yellen's speech/ testimony. But life's little pleasures. you have to take them when you can get them, eh?
In Brazil, where the real has become the laughingstock of currencies once again, Dilma Rousseff believes she has the answer for the country's economy. She calls it austerity. It's a plan to improve the country's finances, by trimming their debt. so, good for them. But, in a country like Brazil, I would think that making such plans to do things like cut unemployment and pension benefits, would end up badly for the President Rousseff. I guess we'll have to wait-n-see how this all plays out. I'm thinking that it's good intentions, but bad execution.
Sweden's Riksbank Gov. Ohlsson told reporters this morning that he can't cut rates much more.In all actuality, I guess he could continue to go negative as much as he wants, but that's not going to help things, so I get his point. the krona, which has been right behind the Brazilian real in terms of loss of value and credibility, rallied on these comments. Once in a blue moon, the krona rallies these days folks.
Well, now that the cease-fire / peace agreement between Ukraine & Russia is over a week old, traders are returning to link the ruble to Oil on a larger scale. Unfortunately, the price of Oil had its brief rally stopped in its tracks last week. The ruble still has pushed the currency appreciation envelope to higher values. In December last year, I remember the talk on the desk was about how at some point the ruble would become a value, but no one would offer up a strong sentiment about when that “some point” would come. Well, it appears to me that as long as the peace agreement can hold, that was the “some point”. Of course, one might argue that until the price of Oil rebounds further, that will be the “some point”, and I see that too! In other words, the “some point” may have already been given to us, or, it might still be out there somewhere. I know I'll find you somehow, somewhere!
Well, Gold sure has been “rate sensitive” now hasn't it? Strong talk of a rate hike in June, brought the shiny metal below $1,200, and then having cold water thrown on that strong talk, allowed the shiny metal to rise above $1,200 again. Palladium took another one of those huge leaps it's known for and is trading above $800 again this morning. I watched a video of the great James Grant speaking that appeared on Kitco.com, and I have this one thing that he said that caught my eye. “It seems to me that the world will eventually see that these policies (by central banks) are non-starters, or if they are starting they won't end well. That for me is a simple case for Gold.” – James Grant.
I love reading James Grant's newsletter and it's something that I've missed being away from the trading desk for these last two months. Of course that's not all I miss being away from the trading desk. the people on the desk that I hired, and worked with for many years, and then the people around the desk too. But there's one thing I definitely do NOT miss, and that's the walk across the wind tunnel bridge every morning!
The U.S. Data Cupboard slows down a bit today, after yesterday's onslaught of data that didn't turn out especially too good for Consumer Confidence and the Richmond Fed Manufacturing Index. Both fell in numbers that were greater than what was expected. The S&P/ CaseShiller Home Price Index saw a bounce in December. Yes, I know it's almost March, and we're just now seeing this data for December! But it was better than expected and the previous month, so at least we now know that home prices were better in December, for whatever good that might do.
Before I go to the Big Finish today, I have a note from the Big Boss, Frank Trotter. Take it away Frank. “The tidbit that Chuck reported in yesterday's Daily Pfennig about JP Morgan Chase beginning to charge some institutional clients to hold deposits was all over the banking news the last couple of days. I did want to note that we're open for business and if your bank is taking an action like this do give us a call here at EverBank, we probably have great solution for you.”
For What It's Worth. Well, it was a slow news night, except for what we already talked about! So I had to dig deep to find this one, but it's former Fed Chairman, Big Al Greenspan, giving an interview to this website: http://www.shtfplan.com/headline-news/federal-reserve-insider-alan-greenspan-warns-there-will-be-a-significant-market-event-something-big-is-going-to-happen_02222015 this seemed so interesting I had to make an exception here and let Big Al have his say. for what it's worth, really plays out here.
“We asked him where he thought the gold price will be in five years and he said “measurably higher.”
In private conversation I asked him about the outstanding debts. and that the debt load in the U.S. had gotten so great that there has to be some monetary depreciation. Specially he said that the era of quantitative easing and zero-interest rate policies by the Fed. we really cannot exit this without some significant market event. By that I interpret it being either a stock market crash or a prolonged recession, which would then engender another round of monetary reflation by the Fed.
He thinks something big is going to happen that we can't get out of this era of money printing without some repercussions – and pretty severe ones – that gold will benefit from.
Chuck again.. yes, the “he and him” is Big Al Greenspan's thoughts. I don't know how I want to take this newfound ability to see stuff, when he admitted when he was chairman that he couldn't see bubbles. But, anyway he makes some valid points in the interview, which was taken from his talk at the New Orleans Investment Conference.
To recap. Well, Yellen's speech/ testimony brought about a different thought process in the markets regarding the time of the first rate hike by the Fed, and that caused a complete reversal in the dollar's trading VS most currencies. The Chinese came back to work after a week's vacation and decided to play catchup with the other currencies that have been weak VS the dollar this past week, and they weakened the renminbi on its first day of trading in a week, even after an improved manufacturing index print. The Russian ruble appears to be back to being tied to the price of Oil for a large part. Kiwi is best performer overnight, even with Wheeler doing his best to keep a lid on the currency, and Gold rebounds back above $1,200.
Currencies today 2/25/15. American Style: A$ .7875, kiwi .7550, C$ .8045, euro 1.1345, sterling 1.5490, Swiss $1.0525, . European Style: rand 11.4550, krone 7.5955, SEK 8.3520, forint 269.20, zloty 3.6670, koruna 24.1670, RUB 62.28, yen 118.80, sing 1.3550, HKD 7.7555, INR 61.96, China 6.1384, pesos 14.89, BRL 2.8445, Dollar Index 94.36, Oil $49.07, 10-year 1.95%, Silver $16.61, Platinum $1,170.38, Palladium $804.00, and Gold. $1,209.23
That's it for today. The Sunrise this morning brings us an orange sky. Yikes, the Blues lost at home last night, and badly too! That's not like that team to lose at home. the great Jimmy Buffett sings about the visitors scoring on the home team's ice. the visitors scored 5 times on the home team's ice last night. UGH! Well, it's time to start worrying again. Cardinals ace pitcher, Adam Wainwright, got sent back to St. Louis because of a stomach discomfort. These teams never really tell you what's going on until they have to, so, I sure hope the Cardinals GM, still has the Phillies GM's phone number so he can inquire about Cole Hammels. Milky Chance is playing their song: Flashed junk Mind on the iPod right now. that's a head bopping song for sure! I sure hope someone doesn't tell me that song is 10 years old like they did when I thought I had a “new song” from the Killers. Well, James Bond or Dean Martin didn't sleep well last night again, I wish I could figure out what causes the difference between a good night's sleep and a not so good night. So, it's time to get out of your hair today. I hope you have a Wonderful Wednesday!
EverBank Global Markets