A Short-N-Sweet One Today.

* Chinese devaluations end..
* Eurozone 2nd QTR GDP doesn’t meet expectations .
* What happens when everyone does the same thing?
* N.Z. Retail Sales are weak.

And now. Today’s A Pfennig For Your Thoughts.

Good day. And a Happy Friday to one and all! I’m really dragging the line this morning. It began yesterday afternoon, and has not let up on me yet. I’m hoping that once I get the letter out, I can go back to bed, and when I wake up all will be better. That’s usually the case, but, this hit me like a brick, and I really just don’t feel like doing anything! That’s fun with chemo for you folks. So, needless to say, this will be very short-n-sweet this morning, unless a wave of energy comes over me.

Well, the Chinese did stop the devaluations last night, and the renminbi actually ended up appreciating! A couple of weeks ago, in a Sunday Pfennig, that there were two Chinese currencies. A non-deliverable renminbi, which is the most commonly used, and the deliverable renminbi, called the CNH. The thing I found most interesting during the 3-days of devaluations in the non-deliverable renminbi, was that the CNH moved along side, there was no compression of the spread between the two currencies. Hmmm. But last night the compression converged to parity with the non-deliverable renminbi. double Hmmm. I see this as a move toward a more market driven price, don’t you? Well, regardless. I do. and that has me thinking about China moving toward a floating currency sooner rather than later.

I know, I know, a lot of that is trader talk and mumbo-jumbo for a lot of people, but stick with me, and you’ll see that the Chinese devaluations set up this ability for them to move toward a floating currency. That’s really all I’m saying, so throw out all that “trader talk” about compressions and converging!

The currencies are a mixed-bag-o-nuts this morning, with the euro rallying again, and in the face of some not-so-great data prints, which only points out what I’ve been saying all week, and that is that the euro has benefitted from the Chinese devaluations, as money continues to leave China, and go home, wherever that is. This morning it was 2nd QTR Eurozone GDP, which was up +0.3%, but failed to meet the expectation of 0.4%… Germany’s print was +0.5%, and +1.6% Year on year. So, it wasn’t the German economy that failed to perform!

Speaking of the outflows of money from China. The latest data on renminbi positions on the balance sheet of the Peoples Bank of China (PBOC) shows that there was a drop of 308 Billion renminbi from a month earlier. Now that’s what I call outflows!

I have to say that I’m seeing something that was bound to happen come to fruition. And that is the Currency Wars, where all the countries debase their currencies to promote economic growth through exports, are finding that when everyone else is doing the same thing, there’s no benefit received.. And then when the rest of the world is wallowing in the economic mud, it doesn’t matter how cheaply the goods are that come into each respective country are, because if the people have hunkered down to ride out the weak economy, they aren’t buying! And then what does the country do with their debased currency?

I think I’m seeing this, and I think the proof in the pudding will be in the next trade data we see from Germany. If this is playing out the way I think it is, we’ll see that the ultra-low euro value isn’t helping with Germany exports, and that will illustrate the picture I just painted for you. Of course we could also see the proof in the pudding with the next trade data from China, but, I think Germany would be a better read.

The worst performer overnight was the New Zealand dollar / kiwi. New Zealand printed their 2nd QTR Retail Sales data and it was weak, and that brought the rate cut bugs out of the wall boards again. N.Z. 2nd QTR Retail Sales were just +0.1%… In addition, the ratings agency, S&P lowered the credit ratings on 7 N.Z. financial institutions, pointing out that the housing bubble in Auckland is not going to end up so good for these institutions.

But the rot on kiwi’s vine this morning hasn’t carried over to New Zealand’s kissin’ cousin across the Tasman, the Aussie dollar (A$), which has carved out a ¼-cent gain this morning. That’s a good thing for the A$, to not be dragged down here.

I really don’t think I can carry on my wayward son, this morning. So, I’m going to go to the Big Finish here, no FWIW today, and go back to bed. Sorry, for the short-n-sweet letter today, but it’s one of those days.

To recap. The Currencies are mixed today, and Gold is up a few bucks. The Chinese did indeed stop the devaluations last night, and the renminbi actually appreciated overnight. Retail Sales in New Zealand were very weak, and the 2nd QTR GDP prints from the Eurozone didn’t meet expectations, and Chuck thinks that the countries that have played in the Currency Wars are going to find out that it doesn’t work when everyone does the same thing.

Currencies today 8/14/15. American Style: A$ .7395, kiwi .6565, C$ .7665, euro 1.1185, sterling 1.5645, Swiss $1.0270, . European Style: rand 12.7895, krone 8.1645, SEK 8.4260, forint 277.55, zloty 3.7440, koruna 24.1500, RUB 64.78, yen 124.10, sing 1.4020, HKD 7.7560, INR 65.00, China 6.3975, pesos 16.39, BRL 3.5190, Dollar Index 96.10, Oil $41.97, 10-year 2.17%, Silver $15.47, Platinum $995.47, Palladium $621.88, and Gold. $1,119.53

That’s it for today. Again, sorry for the abbreviated letter today. My beloved Cardinals blew their chance for a sweep last night in the first inning! UGH! That was not fun to watch. My Fantasy Football League has our draft tonight. I sure hope I’ve gotten over this, whatever it is that has me feeling like death warmed over, so I can enjoy the draft. I always pick an awful team so maybe if I’m still not feeling well, I’ll just go with automatic picks. Couldn’t hurt! Carlos Santana is playing his song: Europa (Earth’s Cry, Heaven’s Smile) Our own soccer legend, Ty Keough, told me a few years ago, that this is the song he and his lovely bride, Abby, danced to at their wedding. Aww, wasn’t that sweet? See, I’m not all full of you know what and vinegar! I’m fading fast here, so I hope you can go out and make this a Fantastico Friday!

Chuck Butler
Managing Director
EverBank Global Markets
Editor of A Pfennig For Your Thoughts