Aussie Retail Sales Dissapoint!

In This Issue.

* Dollar has the conn again.
* A$ is worst performer overnight!.
* OPEC attempts to jawbone Oil higher..
* Short Paper Traders aren’t finished .


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

Good day. And a Tom Terrific Tuesday to you! Man this cold that I told you I had come down with late last week, has got its grip on me, and it really reminds me of that whenever I try to sleep! UGH! So, here I am with very little sleep last night, and I would really like to just deep six this, but. that’s not what I get paid for! Hey! (I’m trying to get more alert), how about my beloved Cardinals, who started the year 3-9 and now have moved into 1st place in their division. But before they break out the champagne, it’s only May 9. There’s a long road ahead, filled with many potholes, and detours. The Blue Jays greet me this morning with their song: Maybe.

The dollar still has the conn over the currencies and metals, and I think I know why. No, Tier 1 data in the U.S. until Friday, when the stupid CPI report will print along with Retail Sales. As long as there’s no data to tell traders they are making a bad trade buying dollars, then the dollar will retain the conn.. Shoot Rudy, even St. Louis Fed President, James Bullard , is on board with my way of thinking about how the data is weak, but the Fed keeps hiking rates. I’ll come back to the James Bullard thoughts in a bit.

But first, we have to talk about the worst performer of the night, and that was the Aussie dollar (A$), which got whacked when their March Retail Sales printed negative at -0.1%, putting an exclamation point on the 1st QTR for Australia.. The data in the 1st QTR was mixed, but leaned toward better than the average bear, so I wouldn’t think that this negative print for Retail Sales, which was fueled by weak food sales (what, is everyone on a diet in Australia?), would have deep sixed the A$ like it did last night, but it did.

And kiwi sold off a bit in sympathy with its kissin’ cousin across the Tasman.. But. So, did you hear the news that the IMF gave the Reserve Bank of New Zealand (RBNZ) a Gold star? Well, actually the IMF found the New Zealand Banking System to be “resilient”, it is well placed to manage risks and vulnerabilities with current developments in the housing sector. (We’ve talked about the housing bubble in Auckland), the high level of household debt, and low dairy prices. But. and you knew there would be a “but”, the IMF thought it necessary to give their two cents of thoughts into the process, and recommended ways to improve strength of the country’s financial sector and regulatory framework.. Now, if I were at the RBNZ, and would have smile, thank the IMF for their kind words, and say no thank you to their suggestions, for history shows us that countries that follow the IMF’s guidelines find that life is a tough row to hoe!

OK, onto other things.. Well, over at the OPEC nations, they made a statement yesterday in an attempt to wrap a tourniquet around the price of Oil, saying that their production cuts could last until 2018, and the price of Oil bumped higher, but then that was it. OPEC’s attempt to jawbone the price of Oil higher, was of little help, but it was a good attempt, boys, now go back and think of something else!

The euro, which Sunday night traded as high as 1.1040, is looking like it will not be able to hold the 1.09 handle this morning. Yesterday, German Factory Orders for March posted a modest increase of 1% VS the previous month’s 3.5% gain. This result was better than expected, and helped closed the gash that the -6.5% January print left. This morning, quite the opposite result in a data print showed up. March Industrial Output in Germany fell -0.4%, but that was better than the expectations for a -1.2% print! So, the data here is mixed, but if you look at it from the right angle, it is positive, and should have helped the euro.

But when the dollar has the conn, the dollar has the conn, and that’s that! Well, the yield on the 10-year Treasury bumped higher yesterday and sits at 2.39% this morning, from yesterday morning’s 2.33% level. We’ve seen these bumps higher in the 10-year’s yield before, and each time they happen, we see the yield drop again. So, until we see 2.50% in the 10-year, I won’t be too concerned with what’s going on.

Instead of data today, we have 3 Fed speakers. 2 dovish speakers that are voters, and 1 hawkish speaker who is a non-voter.. Kashkari and Kaplan are the dovish speakers, and Rosengren is the hawkish speaker.. I don’t think any of these 3 will spill the beans and talk about how the Fed is really concerned about the weak data. (that’s just me thinking out loud, folks) But, how weak the data has been IS on the mind of Fed St. Louis President, James Bullard.. let’s listen in to what he had to say yesterday in Florida.

“The first-quarter GDP growth was disappointing and it means we are starting the year in an inauspicious way. … It was consumption growth that was weaker and that is a concern because consumption has been a strong point. On inflation the numbers were disappointing. We have been telling a story that we are trending back towards 2 percent and we went the other way.”

Ok.. who here thinks that, after reading this, that Bullard is concerned, and if he’s concerned then there are other Fed members who feel the same way, I would think.. Maybe, just maybe, the Fed members are beginning to see what I’ve been saying all along, and that is that the economy is too weak to support rate hikes.

Of course, I don’t think for one minute that any of this will stop the Fed from hiking rates again next month.. But, in my opinion and I could be wrong, they had better stop and take a picture of that rate hike in June, because it will be the last one they make for a while.

The dollar’s grip on the conn is so tight right now, that even the Indian rupee has fallen VS the dollar since yesterday. The rupee has been one of the real bright spots among the currencies, but not in the past 24 hours. I guess those traders that were all worried that the rupee was going to overheat, have nothing to worry about now! The downward move of the rupee isn’t huge, and it’s not small, it’s just right! HA!

And Gold lost a $1.90 yesterday, to close at $1,226.00. So I guess the short paper traders aren’t finished with Gold yet. In India, their April Gold Imports were more than double their levels from a year ago! So, not everyone is selling their Gold! No, in fact, 75 tonnes of physical Gold was imported by India in April.

Before we head to the Big Finish today, I wanted to revisit something I wrote about a few months ago in the Review & Focus ( about how the Fed was beginning to talk about not reinvesting matured bonds that they held as a part of their balance sheet, which is $4.5 Trillion. I want to emphasize that now is not the time for the Fed to begin be righteous about their balance sheet. China, Russia and Saudi Arabia with others of course, but these are the BIG 3, are not showing up at the auction window like they used to. So, who’s going to pick up the slack at a time when deficit spending (the new budget as an example) is ratcheting higher? If you missed that discussion you can always click the link above and go to the archives, as I said when I wrote it, “that’s the best piece I’ve done in a long time”..

To recap. The dollar has the conn, and has really pushed down the euro, after the euro hit 1.1040 the night before, the single unit is ready to give up the 1.09 handle this morning. Aussie Retail Sales were disappointing, and caused the A$ to be the worst overnight performer. Gold lost $1.90, and is down another $2 in the early morning trading. Chuck’s worried about who is going to pick up the slack of more bond issuance now that the Fed is talking about not reinvesting matured bonds they hold. And instead of data here in the U.S. today, we get 3 Fed speakers.

For What It’s Worth. You know my dad used to tell me, never to get in an argument with someone that knows more than you about the subject. Simple, plain advice that I’ve found quite helpful over the years. There’s a writer in New Zealand that should have had a dad like mine to advise him of the same thing, because this writer, picked an argument with none other than the best Central Banker of all time, Don Brash! Now, longtime readers know that I met Don Brash years ago when he was the Gov. of the Reserve Bank of New Zealand (RBNZ), and he gave me his card with his direct phone line, and told me to call him whenever I had a question about RBNZ monetary policy. I did just that and he answered the phone, and promptly took the time to go through whatever it was that was on mind. OK. I won’t be able to give you the full article in the “snippet” section, so make sure you read the whole article here:

Or, here’s your snippet: “In last Friday’s Herald, under the headline “Brash blind to facts with money creation denials”, Bryan Gould returned to his assertion that banks are really “charging interest on money that they themselves create” by “the stroke of a pen or a computer entry”.

He seeks to defend his assertion by citing a Bank of England article which notes that it is a “common misconception… that banks act simply as intermediaries, lending out the deposits that savers place with them”. This “ignores the fact that… in the modern economy, commercial banks are the creators of deposit money”.

I have no quarrel with the Bank of England’s argument, of which I am well aware of course. As I made quite explicit in my first reply to Mr. Gould, “the banking system does create money.

When Bank A lends money to one of its customers, the customer may use those funds to buy something from somebody who banks with Bank B. Bank B then finds itself with an additional deposit, a part of which it can lend out to its customers…

So an initial loan may end up considerably increasing the total lending by the banking system”.

But an individual bank cannot create money by “the stroke of a pen or a computer entry”.

If it could, as I asked in my first reply to Mr. Gould, why do they bother paying interest on deposits, or borrow overseas to fund their operations? Why do they ever run out of an ability to repay depositors in the event of a “run” on the bank?”

Chuck again, and there’s so much more from Don Brash at the link above. It’s been a couple of years since we last traded emails, I’ll have to fire one off to him, and tell him what a good debater he was!

Currencies today 5/9/17. American Style: A$ .7356, kiwi .6895, C$ .7310, euro 1.0902, sterling 1.2923, Swiss $.9976, .. European Style: rand 13.6360, krone 8.6420, SEK 8.8612, forint 285.98, zloty 3.8747, koruna 24.5007, RUB 58.11, yen 113.76, sing 1.4101, HKD 7.7843, INR 64.66, China 6.9023, peso 19.15, BRL 3.1828, Dollar Index 99.42, Oil $46.62, 10-yr 2.39%, Silver $16.23, Platinum $911.53, Palladium $810.00, Gold $1,225.40, and SGE Gold. $,1239.79

That’s it for today. Lots of stuff to think about today for you, eh? Hey! if my mind is going to be going in 10 different directions with thoughts, I’m going to share them with you! Aren’t you the lucky one? HA! Well, I’ve been relegated back to the basement and my writing desk! I had been camping out at the kitchen table, but I finally got the hint and moved to the basement. And this is where I’ll stay! I was talking to someone yesterday, and the subject turned to the preparations for the flood, and I told them that Alex came to help and was the star performer of the day, as he took my place in the heavy lifting, and I was so proud of him. England Dan & John Ford Coley take us to the finish line today with their song: Night Are Forever. And with that, I hope you have a Tom Terrific Tuesday, and Be Good To Yourself!

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