Black Friday is here, is it a good indicator???

* Black Friday is here…
* Euro area confidence matches a 4 year high.
* US data point to moderate growth…
* STL Fed studies the impact of China’s currency…

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

I hope everyone had a Terrific Thanksgiving with their families and friends. Mine sure was – we hosted my side of our family at our home and enjoyed a day of overeating combined with a whole lot of watching football and just generally enjoying each other’s company. Really just a great day! As has become a bit of a tradition, I will start this ‘Black Friday’ edition of the Pfennig with a quick report on the overnight activity in our parking lot which we share with a Best Buy and Sports Authority. From the look of the parking lot, this holiday season isn’t going to kick off as hot and heavy as those in the past. There are definitely more cars in the lot than on a typical day, but no signs of overnight campers and no indications that there were long lines. I remember a few years ago when I had to work my way through people waiting in line to get into the Best Buy – the line was wrapped around the building (probably about 1/8 of a mile in total). I’m not sure the lack of activity is a good signal of the upcoming Xmas shopping season though. I know many of the stores are actually opening on Thanksgiving day now, and there have been a dramatic increase in the number of ‘online’ shoppers/offers which probably accounts for some of the drop in activity down in our parking lot.

We left a bit early on Wednesday and headed downtown to meet up with Chuck on Wednesday night. I really enjoyed spending some time with him – and he looks great! As is typical when Chuck takes a ‘day off’ from writing the Pfennig – he went ahead and sent me something to include (he is a bit confused as to the meaning of a day off!!) so without further ado, here’s Chuck:

I decided to sit down at my writing desk today, and see what the email box looked like. I had been away for most of the day yesterday, arriving at the doctor’s office at 10:30 am , leaving at 2pm and heading to meet the boys on the trading desk and then not arriving home until 8 pm. I was plum worn out, as I had received an infusion too that day! So, here I am, and I saw an email from colleague, Ty Keough, and the email had a link to an article on the 50 Safest Banks Worldwide. So I clicked on it thinking that he had probably sent it to me for me to see that EverBank was on the list. But that wasn’t the case. For these are MEGA Banks, and are represented by 21 different countries. Countries as small as Lichtenstein and Singapore, to countries as large as the U.S. and China. I really didn’t get what I was looking for at first, but then it occurred to me to make a chart and see which country had the most Safest Banks. And that prize went to.. Drumroll please. Germany with 7! WOW! Canada, which has always been viewed as a very strong banking country, came in second with 6, and Australia was third with 4.. Guess how many the U.S. has? It’s the same number as: China, S. Korea, Singapore, France, Holland, and Switzerland. 3. How can that be? The U.S. has the same number of Safest Banks as France? S. Korea? Now that’s something to make you go Hmmmm.

I hope that didn’t bore you to death. But I thought it was interesting, eh? Well, I can smell the turkey cooking, as the wonderful aroma, drifts all the way down in the basement, where my writing desk sits. My well trained sense of smell, tells me that it has about 2 ½ hours to go! The Football games will begin soon, I have my iPod playing through my Bose Bluetooth speaker, and John Denver is singing Take Me Home Country Road. Haven’t hear that one in a long time! So, I hope you had a Blessed Thanksgiving, and that you were able to stop and think for a minute on that day, about what you are thankful for, grateful for, and tell everyone around you that you love them. Now. Back to Chris!

Thanks Chuck and one other thing about those banking numbers – I don’t think it is a coincidence that many of the countries with the highest number of safest banks also have heavy commodity stores. Canada and Australia have high levels of natural resources which help solidify their economies – a form of ‘natural collateral’ for them and making their economies a better bet for investors.

As expected, Wednesday was a slow trading day with many of the desks short staffed and today will probably be even slower. The one item noted on the news wires overnight (besides all of the chatter about Black Friday) was data which showed the Euro-area confidence as reported by the EC in Brussels matched a 4 year high. The index of consumer confidence hit 106.1 in November and October’s reading was revised to the same level from an initial 105.9. The good news may actually be a problem for the ECB and its leader Mario Draghi. As readers know, the ECB is widely expected to announce an extension / expansion of their QE next week. A couple of the options being discussed are sending interest rates even further into negative territory or an expansion of the current asset purchase program. The problem with second option is that the ECB is starting to have trouble finding bonds to purchase as part of their bond buying. Even with the increased confidence numbers the markets seem to think further action by the ECB is a ‘done deal’ as they try to spur more inflation in the Eurozone. Euro area consumer prices rose an annual .1% in October while the core figure jumped 1.1% which was the highest level since August of 2013 still well below their goal of 2%.

Data released on Wednesday here in the US showed that consumer spending barely increased in October as consumers increased savings instead of spending. This data reflects my earlier thoughts on the holiday shopping season and that perhaps we could see some disappointing retail sales figures in the important 4th quarter. Income here in the US rose .4 percent and this combined with just a .1% increase in consumer spending sent the US savings rate to the highest level in nearly 3 years. While this is good news for individuals it is not so good for expectations of a boost in fourth quarter GDP as consumption makes up over two-thirds of US economic activity. Estimates for 4th quarter GDP continue to hold close to 2% which is still probably enough for the FOMC to justify a rate hike but not the typical level of growth during a recovery.

With thin markets all around the dollar continued on its recent ‘slow and steady’ appreciation vs. most of the currencies. The combination of continued expectations of an ECB stimulus increase along with a FOMC rate increase here have kept the dollar in an upswing. The Euro moved through the $1.06 handle which was seen as a fairly major support level and the current reading of $1.054 is as low as it has been since hitting the mid $1.04 level in March/April of this year. The pound sterling recovered from a two week low against the euro and inched up against the dollar on Wednesday as British finance minister George Osborne told parliament that further austerity measures would be shelved for now.

Today is shaping up as ‘more of the same’ for the dollar which is drifting higher as I wrap this up. With the dollar moving higher and no real economic data to move things we are seeing the precious metals continuing their recent downward trends also. Gold is off $16 dollars this morning and Silver is threatening to lose the $14 handle. Nothing really to report as to these moves – just more of the same. Physical demand continues to be strong, but institutional and ‘paper’ trades are pushing the prices lower.

To recap, Black Friday may disappoint according to my reading of the parking lots surrounding our Global Markets office in St. Louis. Euro area data shows consumer confidence has increased to 4 year highs but the ECB is expected to deliver on the promise of further stimulus in spite of this. US data shows consumer spending barely increased sending the US savings rate to the highest level in 3 years – good news for individuals but not so good for the US economy. And the dollar continued to drift higher while precious metals moved lower in pretty thin markets.

Currencies today 11/27/15. American Style: A$ .7198, kiwi .6528, C$ .7489, euro 1.0540, sterling 1.5042, Swiss $.9708. European Style: rand 14.2858, krone 8.6937, SEK 8.7367, forint 295.28, zloty 4.0311, koruna 25.529, RUB 66.144, yen 122.69, sing 1.4107, HKD 7.7504, INR 66.8177, China 6.3915, pesos 16.545, BRL 3.7333, Dollar Index 100.12, Oil $42.19, 10-year 2.21%, Silver $13.99, Platinum $832.75, Palladium $549.75, and Gold $1,056.86

TTWT: I am a subscriber to the St. Louis Federal Reserve’s research reports and came across this article dealing with China’s economic slowdown and the correlation to the appreciation of the Chinese Renminbi. Chuck has been keeping us all up to date on the continuing debate over the valuation of the Chinese Renminbi and the way China uses their currency value as a ‘policy tool’ (not necessarily unlike many other nations). The article addresses possible links between the recent currency movements and the slowdown in the Chinese economy. It is a fairly easy read, and a short research piece which I would encourage you all to read:

That’s it for today. I had an absolutely fantastic Thanksgiving with an early morning duck hunt with my son who is home from college followed by a day of over indulging and football. We had my family come over to our home and Tina made a great Thanksgiving feast topped off with a few of my mom’s wonderful deserts (she really should go into business making her cheesecakes!!). I hope all of you had a great Thanksgiving, and a Fantastic Friday! I’m really late and the reviewers just sent me a note wondering if this is going out today, so I’ll hit the send button now. Happy Black Friday and thanks for reading the Pfennig!

Chris Gaffney, CFA
EverBank World Markets