Aussie Employment Soars!

* A$ is best performer overnight.
* Dollar takes back control after a soft Wednesday
* What were you doing in 1994?
* Global Growth continues to circle the bowl.

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

Good day. And a Tub Thumpin’ Thursday to you! We Celebrated Veterans Day yesterday here in the U.S., and with a mid-week Holiday, it makes today feel like Monday again, so we have a two-Monday week! Oh well, no biggie, and I’m certainly not complaining about a mid-week holiday! ELO greets me this morning with their song: Can’t Get It Out Of My Head, which was a live recording with the Moscow Symphony Orchestra, and while it is playing, I can relate to the song, because I just can’t get it out of my head, that the markets have swallowed the Fed’s bait, hook, line and sinker. Midnight, on the water. I saw, the ocean’s daughter, standing on a wave she came. Ahhh, what a great group and song.

So. Yesterday, the markets were pretty thin once the London boys and girls headed to the pubs, but we did see some fight in the currencies, and the overall feeling in the markets was that the dollar was softer. The Aussie dollar (A$) and N. Zealand dollar / kiwi, were the best performers on the day. The Reserve Bank of New Zealand (RBNZ) printed their latest Monetary Policy Statement (MPS) and in it, RBNZ Gov. Wheeler was very clear that he was concerned with House prices in Auckland going through the roof. I don’t think he’s going to panic though, and believes that the global economy is in major dookie right now, and that will be enough to even out the house price problems. And.. mark this down because it didn’t happen and it’s rare when it doesn’t. Wheeler didn’t take a shot at kiwi strength. Hmmm. Has he come around to Chuck’s way of thinking that a strong currency will go a long way toward fighting the inflation he’s concerned about in housing?

Well, being the major dolt that I am at times, I had something all queued up on Tuesday morning, and then completely left it out of the Pfennig, so even though I’m now a day late and dollar short, I’m going to tell you the news that China announced earlier this week. China announced earlier this week that they would begin to trade the renminbi with a direct conversion to Swiss francs. So, once again, the Chinese scooped the markets with news of them pushing the envelope of a “wider currency distribution”. And this is more than that, folks. It’s also window dressing for the IMF to view, and take into consideration when deciding whether to add renminbi to their SDR’s (special drawing rights) which is equal to the list of reserve currencies. The dollar, euro, yen, and pound sterling now are the 4 currencies that make up SDR’s. But, if my sources are correct, the IMF will soon announce that they are adding renminbi.

And as far as me forgetting about this on Tuesday, the only thing I can say for myself is simply that I have what they call “chemo brain”. It’s a fog, and messes with one’s ability to think. My oncologist told me a story about a woman that had “chemo brain” so bad, that she had to be shown how to load a dishwasher again. don’t laugh. This is “real thing”. Obviously it hasn’t affected my ability to function, so let’s not do the “it’s the end of the world as we know it” stuff for me. But I do find it to be a convenient excuse for when I forget to do things. HA!

Well, one of the constant things I continue to hear from the Fed members is that they truly expect to see inflation growing soon. Really? Hmmm, wonder if they saw the Import Prices data on Tuesday. Import Prices fell -0.5% in Rocktober, much softer than the consensus of -0.1%… Import prices will pass through to consumer prices folks, and that’s going to keep a lid and most likely cause CPI (consumer inflation ) to drop, not rise going forward! This is what I was referring to the other day when I talked about how the dollar is stronger now than it has been in the last 13 years, and stronger than it was in September, when the Fed passed on their rate hike, and mentioned the strength of the dollar as being one of their reasons for passing on the rate hike. So, knowing that Import Prices have dropped more than expected, and that will feed to consumer prices, and it’s all because the dollar is so strong, what does the Fed do now? The pointed out the dollar strength before, and now the dollar is even stronger.

And I’m assuming that their legion of economists are well aware of the fact that every time a Fed Member talks about how they see a rate hike coming, that the dollar gets stronger, and every time the dollar gets stronger, deflation is allowed to grow stronger. You see, one of the benefits of a strong currency, which I believe should be every country’s goal for their currency, IF, the fundamentals call for it, is that a country exports their inflation. which if inflation were actually allowed to be reported correctly here in the U.S. would be a good thing. But inflation was put to bed by decisions that were made by people that should have known better back in the mid-90’s. I won’t name names, but longtime readers may recall back in the day when I could call out names of people that did dolt things, without a problem, and they may recall me giving you these names back then. Instead, I would suggest you buy and read the book by William Fleckenstein and Fred Sheehan, Greenspan’s Bubbles. it has all the information you need to know what the heck went on, why, and what resulted.

Well, the markets will be back to normal today, but still void of any real Tier 1 economic data from the U.S. Data Cupboard. And this morning, it appears that yesterday’s soft dollar has reversed and the dollar is back in control for the most part. The Aussie dollar (A$) is the best performer overnight, and really soared at one point through the night. The A$ has given back a bit of its gains overnight, but still is trading with a quite impressive move. So, let’s take a look under the hood, to see what’s up, down under.

Aussie Employment Change soared in Rocktober climbing to 58,600 VS a consensus of 15,000, and the Unemployment Rate dropped from 6.2% to 5.9%… With full-time jobs taking up a good portion of the 58,600 gain, with a figure of 40,000 full-time jobs added.. It was all good for the rate cut picture here, as the rate cut bugs crawled back into the wall boards at the sight of this jobs report. Sure, the Reserve Bank of Australia (RBA) could ignore this and decide to cut rates in December, but I doubt they will. Inflation Australia isn’t soaring but it’s also not falling remaining steady Eddie at 1.5%, yes, still below the 2% target, but holding.

The euro continues to drop in price, and it appears that the calls from Goldman Sachs that the euro would be trading at parity with the dollar by year-end, will play out. We didn’t expect anything else did we? I mean, Goldman Sachs has become the E.F. Hutton of the commercials of the 70’s. Remember those? When E.F. Hutton talks, people listen. It was a good marketing campaign, and they made E.F. Hutton out to be “the market expert”. So, that’s what we have to live with now. But I guess that’s a good thing that we have a firm so admired by the markets like that, eh?

No, I haven’t lost my mind. I’m being very sarcastic there. But what’s driving this dollar strength? The talk of a rate hike. You see, it’s all a game people play. The Fed talks about the rate hike, and economists, and market participants all take that as the Fed telling us that “everything is good in the economy”, and that begets even more dollar buying.

While in the Eurozone, we have the European Central Bank (ECB) talking about the need for more stimulus. Two Central Banks going in opposite directions, and not just any two Central Banks, it just so happens that these are the two Central Banks of the two largest economies of the world. So, I saw sitting here yesterday, working on some thoughts for today, and I kept wondering if this had ever happened before. And if it did, what was the currency reaction on each side of the Atlantic?

And then this morning, I couldn’t sleep, and so I went to my writing desk and began to scour the newswires for stuff that was interesting, and guess what? Someone at Bloomberg, must have read my mind, for they wrote a story about “What Happened When The Fed Last Diverged With Europe”. This is good, and I’ll give you a couple of snippets, because you know me, I love these look-backs in history.

“It’s been more than 21 years since the Federal Reserve last raised interest rates the same month as its main counterpart in Europe eased their monetary policy. May 1994 was the month. Nelson Mandela was being sworn in as S. Africa’s first black president and the tunnel linking the U.K. and France was opening for the first time. Beverly Hills Cop 3 was released in cinemas, and the Crash Test Dummies were singing “Mmm Mmm Mmm”

It’s so long ago that neither the euro nor the ECB existed. Europe’s benchmark interest rate was set by Germany’s Bundesbank. That month, Alan Greenspan boosted its benchmark rate to 4.25% from 3.75%, and the Bundesbank, led by Hans Tietmeyer, cut its discount rate from 5% to 4.5%…”

Chuck again. Yes, this was a significant move in more ways than one folks. And while at first, the dollar didn’t react favorably to this move, it took about 6 months before it realized that it should be rallying, the important thing here that wasn’t figured out until years later, is that these moves were done to stop the bleeding in the dollar, which had been in a weak trend for a long time, and had become a real problem in the financial markets. Yes, the Fed and Bundesbank worked together to help the dollar get back on its feet.

Now, I don’t believe that’s what’s going on this time because the dollar has been swinging its mighty hammer for over a year now. But the reason I went through all this, was to point out that just because the Fed hikes rates, the dollar doesn’t necessarily take off for higher ground immediately. Well, at least it didn’t 21 years ago, and you know me and history and the ties.

So. We’ve been waiting and waiting and growing ever-so-impatient with the Indian Gov’t and their PM Modi to implement reforms. And finally this. The Indian Gov’t announced steps to boost inflows into India. Regulations in Foreign Direct Investment (FDI) in 15 sectors have been eased, including a higher cap on project approvals from INR 30 Billion to INR 50 Billion. The changes should ensure faster approval of FDI proposals, and reduce paperwork. This is a good step for India folks. As it will allow the investment into the country to flow easier, and reduce the red tape. Alrighty then Mr. Modi, what’s next?

The price of Oil has tumbled again and is trading this morning below $43. The Petrol Currencies are getting hammered on this drop in the Oil price. Russian rubles, Norwegian krone, Canadian dollars/ loonies, Brazilian real, and even the Mexican peso, are all sitting with larger than usual losses this morning. It’s been quite ugly for these Petrol Currencies in the past year, as the price of Oil dropped from over $100 to under $43. And the Oil pumps just keep pumping. Just this week both Saudi Arabia and the U.A.E. announced that they were going to increase production. I do believe that these countries can’t cut production at this point.

Speaking of Oil Production, let’s slide over to the U.S. Oil Production. I’ve been telling you about the number of Oil rigs closing, and the financialization of the Oil sector is building some black clouds on the horizon, and now there’s this. U.S. Oil companies have shut down $200 Billion worth of projects this year. Uh-Oh. And then I read that Energy Consulting Company Wood Mackenzie estimates that $1.5 Trillion worth of Oil projects in North America can’t make money at $50 Oil. YIKES! This is getting ugly folks, very ugly. And yet, you turn on the evening news, and not one mention of these problems. Hmmm.

Well, Gold is flat today. The shiny metal attempted to mount a rally yesterday, but by the end of the day, it was right back to square one where it started the day. My spider sense is tingling here folks. I get the feeling that Gold is ready and waiting. Ready to take off to higher ground, but waiting for the Little Dutch Boy to remove his finger from the dam that’s holding back all the debt in the world, for when it either comes over the dam, or blows through the hole the Little Dutch Boy is plugging right now, it’s not going to be fun. It’s not going to be seashells and balloons, or sunshine and lollipops.

The U.S. Data Cupboard has the usual Tub Thumpin’ Thursday fare for us today, with the Weekly Initial Jobless Claims. The cupboard also has the Monthly Budget Statement that’s on the docket to print today. But that’s it. Like I’ve said all week, it’s been a week void of Tier 1 data until Friday, when we’ll finally see something worth looking at. Rocktober Retail Sales. We’ll talk more about those tomorrow, God willing.

To recap. With yesterday being a holiday in the U.S. the markets were quite thinly traded, and we saw the dollar turn soft on the day, but that softness has reversed overnight, and the dollar is back in control for the most part today. The Aussie dollar is the best performer overnight, as their labor report blew the consensus out of the water, and made the markets think twice about a rate cut in December. Chuck goes through the last time the U.S. and Europe diverged with monetary Policy. You won’t believe it but it has been 21 years! Gold is flat, and Oil has fallen in price again.

For What It’s Worth. Yes, for all you FWIW fans, it’s back today! Tell all your friends, that it’s back, but only for a limited period. Today! HA! Well, I keep telling you that the Global Growth is circling the bowl, and reminding you that the U.S. is a part of the Global Growth calculation. So, when I saw this in the Casey Dispatch yesterday, I thought it was a perfect illustration and explanation of what I’ve been telling you.

“A.P. Møller-Mærsk A/S (AMKAF), also known as Maersk, is the world’s largest container shipping company. It moves about 15% of all the consumer goods shipped around the world. This is why many investors consider it a bellwether for global trade…

Last week, the company reported a 61% drop in profits for the third quarter. It also said it was eliminating 4,000 jobs. The massive layoffs will cut Maersk’s global workforce by 17%. The company also canceled orders for several new ships.

Maersk’s CEO, Nils Smedegaard Andersen, says he had to make the cuts because the global economy is stalling. We believe that global growth is slowing down…Trade is currently significantly weaker than it normally would be under the growth forecasts we see.”

Chuck again. So, there you go! And I won’t get “the talk” because this is actual stuff happening, and from a news source that we’ve known for years!

Currencies today 11/12/15. American Style: A$ .7135, kiwi .6540, C$ .7520, euro 1.0720, sterling 1.5185, Swiss $ .9950, . European Style: rand 14.2250, krone 8.7000, SEK 8.6790, forint 291.00, zloty 3.9400, koruna 25.2105, RUB 65.83, yen 123.00, sing 1.4195, HKD 7.7505, INR 66.30, China 6.3628, pesos 16.75, BRL 3.7780, Dollar Index 99.17, Oil $42.94, 10-year 2.32%, Silver $14.39, Platinum $880.45, Palladium $580.30, and Gold. $1,1085.84

That’s it for today. Well, it’s back to the infusion center for me this morning. While I don’t mind the whole process, even though the nurses can’t ever seem to find a vein on the first stick, I really don’t like being in a room with all those sick people. God Bless them all, and I’m sure they are thinking the same thing about me! I have to say that most are positive about things, and I’ve always said that being positive about cancer is a good thing. I actually got “out” yesterday, but not around people. I drove out to the country, to visit the graves of my mom, dad, sister and brother. It’s about an hour there and an hour back, and that represented the most time I’ve been “out” in a long time, except my days at the infusion center. Congrats to Yadier Molina and Jason Heyward, two Cardinals that won Gold Gloves this year. That’s Yadi’s 8th consecutive Gold Glove. He’s still got some work to do to catch Ozzie Smith’s Cardinals record for Gold Gloves received. But I’m sure he’s up to it! So.. Clemson is #1 in the playoff poll. That’s pretty impressive, eh? The great Al Stewart is playing his song: Time Passages on the iPod right now, this song just takes me away. Ok, I’m back now. and just in time to tell you that I hope you can make this a Tub Thumpin’ Thursday!

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