In This Issue.
* Ben's last chance to impress…
* Durable goods plunge in December…
* Gold edges lower ahead of Fed…
* Chuck headed to Orlando…
And, Now, Today's Pfennig For Your Thoughts!
Markets wait for Chairman Bernanke's swan song…
Good day. Thanks to Mike for bringing us the Pfennig over the last two days, and for the happy birthday wishes. Yes, I'm another year older but I don't feel much different. I am told next year is 'the BIG one' so check back in with me next year to see how I feel after passing that milestone. I did get to go out to celebrate last night with a few of my co-workers, unfortunately (or not) missing most of the President's State of the Union. I did hear that he has 'shrunk' his agenda from years past, and will focus on creating more opportunities for the middle class and possibly passing some sort of immigration reform. The markets don't seem fazed by anything said last night, and are instead focusing on the end of Ben Bernanke's time at the Fed.
Today will be the last time Ben Bernanke will get to let us know what went on during the two day FOMC meeting. Most economists believe the FOMC will continue the $10 billion taper of bond purchases which they began at the last meeting. I agree with them, and think the Fed will ignore the recent data which indicates the US economy may have hit a pothole on the road to recovery. The reason I am so confident we will see another $10 billion reduction can be found in the minutes from the last Fed meeting. The reason the members of the FOMC decided to reduce the amount of their monthly bond purchases was not solely due to the recovery of the US; one of the main reasons for the reduction was because the members just didn't feel the bond purchases were having any impact on the US economy. The Fed members have finally reached the same conclusion that Chuck made some time back, that expanding the Feds balance sheet by an additional $75 or $85 billion per month is no longer giving any support to the economy. The money isn't turning over in the economy, and therefore is not giving the US economy the desired boost. I think Ben Bernanke will therefore keep the FOMC on the pre-programmed path of $10 billion reduction per meeting with the bond buying ending in 2014.
The currency markets have calmed from the volatility which began last week with the Emerging Market rout. In a desperate move last night the Central Bank of Turkey increased several key interest rates. The move seems to have worked as it brought a halt to the sharp slide of the Turkish lira. The Reserve Bank of India also surprised the markets with a 25 bps rate hike yesterday and many believe the South African central bank will also be looking to hike rates. All of these moves have seemed to calm the emerging markets as traders now all wait for news from the Fed.
The dollar rose slightly yesterday, and continued to move higher against the euro and yen in overnight trading. The focus of traders was squarely on the US Federal Reserve and as I mentioned earlier currency investors seem to be convinced we will see another $10 billion taper. They are obviously ignoring the data released yesterday here in the US which showed US durable goods orders plunged during December.
The Commerce Department reported yesterday that durable goods orders dropped 4.3% last month, pulled down by weak demand for transportation equipment, computers, electronic products and capital goods. This was the largest drop since July and reversed November's revised 2.6% increase in orders. Economists had expected an increase of 1.8% during December. And even when the volatile transportation orders are removed, the number still showed a drop of 1.6% which was the largest decline since March.
Offsetting these worrisome Durable Goods numbers was data that showed consumers are more confident this month. The Consumer Confidence index rose to 80.7 from last month's revised figure of 77.5. Consumers are entering 2014 with much more confidence than the last couple of years, which is very good news as the US economy is still driven by consumption. Other data showed home prices continued to improve with an expected 13.7% YOY rise shown by the S&P/CaseShiller Home price index.
Today's data cupboard is pretty bare so the markets will be solely focused on the FOMC announcement.
One of the items which prompted the sharp sell off in emerging markets last week was the weaker than expected PMI data out of China which suggested the Chinese manufacturing sector could be headed for a slowdown. Overnight we got some additional data which showed Chinese manufacturers were still able to book nice profits last year. Profit of Chinese industrial companies increased 6% last month compared with December 2012, according to the National Bureau of Statistics. In November, profit climbed 9.7% year over year. For all of 2013, profit gained 12.2% compared with 2012. These figures should serve to calm fears that the Chinese manufacturing sector is in bad shape.
The precious metals markets were also calmer yesterday, with gold trading in a fairly tight range. But prices have started rising again this morning. I was speaking to a Bloomberg reporter yesterday regarding the price of Gold and pointed out that we are definitely in an upward trend. Since reaching a low price of 1,189.60 on December 19th, the price of gold has been steadily rising. We have consistently reached higher highs and higher lows which has led to a 5 ½ week rally. Gold is up nearly 5.5% this year, and while it is down slightly from the 10 week high it hit on Monday, the upward trend is still in place and suggests we will continue to move steadily back towards $1,300. The continued strikes in South Africa have supported the price of platinum which has also turned in a nice rally since the beginning of the year.
Then there was this. Frank Trotter was eloquent as ever in announcing he will be heading down to Argentina again this year and it reminded me that I need to let everyone know that Chuck will be giving a presentation himself later this week. Chuck will be criss-crossing the country today, ending his vacation out in Hawaii to head down to the Money Show in Orlando. Chuck will be giving two separate presentations on Friday and I would encourage any of you who are anywhere close to Orlando to head on over to the Gaylord Palm Hotel to attend them. It is a great opportunity to hear Chuck bring the Pfennig to life, and he always makes himself available in the 'exhibition hall' at the EverBank booth.
Registration is free, and you can get all of the information regarding this year's Orlando MoneyShow at the following: http://www.moneyshow.com/tradeshow/orlando/world_moneyshow Again, if you are anywhere near Orlando I would encourage you to stop by and say hello to Chuck.
Recap. Traders are focused on the FOMC decision which will be announced today by Ben Bernanke for the last time. Everyone, including me believes the Fed will cut another 10 billion, in spite of the recent data. Durable goods orders plunged in December, but this negative number was partially offset by a stronger than expected reading of consumer confidence. Chinese industrial companies were profitable last year, giving some relief to those worried about a manufacturing slowdown. And Gold continued its steady march higher.
Currencies today 1/29/13. American Style: A$ .8751, kiwi .8274, C$ .8970, euro 1.3637, sterling 1.6545, Swiss $1.1121. European Style: rand 11.127, krone 6.1949, SEK 6.4601, forint 225.20, zloty 3.0873, koruna 20.178, RUB 35.038, yen 102.72, sing 1.2743, HKD 7.7638, INR 62.41, China 6.1073, pesos 13.3253, BRL 2.4399, Dollar Index 80.703, Oil $97.31, 10-year 2.7571%, Silver $19.64, Platinum $1,409.75, Palladium $715.00, and Gold. $1,259.30
That's it for today… I had a great birthday yesterday, thanks to everyone who sent me birthday wishes! I got to watch my Blues avenge a previous bad loss to the New Jersey Devils by shutting them out last night downtown. Happy birthday to my friend and co-worker Pat Slater who helps keep our WM computer system running smoothly. Busy morning as I have a couple of interviews heading into the FOMC rate decision this morning – and I am running late as usual. Have a Wonderful Wednesday and thanks for reading the Pfennig.
Chris Gaffney, CFA
EverBank World Markets