China Allows Largest Renminbi Appreciation Since 2005!

* U.S. GDP very weak at 0.5%!
* Widespread dollar weakness today! ..
* Petrol Currencies soar!
* U.S. Spending data today.

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

Good Day. And a Happy Friday to one and all! It was a beautiful, weather-wise, morning as I went out to my car this morning. I do believe that the sun is supposed to come out today, and that would make it a Fantastico Friday. I start the new treatment on my legs today, It will entail sitting for an hour in the morning and night hooked up to a machine. I don’t know how that’s going to work out with me coming to work but I guess I ‘ll figure it out.. I heard a song by Jethro Tull on the car radio coming in, Too Old to Rock & Roll, Too Young to Die. And that got me thinking about myself. I said, “I’ll never be too old to rock & roll!” And then laughed out loud! But I grew up with rock & roll, and it will always be in my blood. I think.

You know how I dislike having to open up the Data Cupboard at the top of the letter, but the goings on yesterday have led to a widespread dollar selloff overnight, so let’s see what all the hubbub is about, eh? I told you yesterday that my GDP Tracker had 1st QTR GDP at 0.4%, but that we didn’t know about all the “adjustments” that would be made to the data, and in the end it printed at 0.5%… Well, whether it’s 0.4% or 0.5% it’s still an awful number for a country that supposedly in a rate hike cycle! One component that I saw in the data that really caught my eye was Business Investment. Business Investment declined for a second consecutive quarter. Add to that Consumer Spending also slowing, and the U.S. economy is going nowhere fast! So, once again I’ll ask the question. When do you think the Fed will admit they made a mistake hiking rates in December?

I digress. Sorry. I really just wanted to talk about how the weak GDP data, which followed the miraculous 1.4% gain in the 4th QTR (I say that in jest, in case you didn’t catch that!). I read that the U.S. hasn’t seen a 3% annual growth year for the past 9 years. We’ve had a couple of quarters during that time that exceeded 3%, but they had no staying power. So, seeing this very weak data, traders went about reversing their thoughts about the U.S. Fed hiking rates any time soon, and with that reversal of thoughts, also brought a reversal of dollar long positions.. Another sign that the strong dollar trend is ending.

The Chinese allowed the largest appreciation of the renminbi in the fixing overnight, in over a decade! Not since China dropped the peg to the dollar in July 2005, has the renminbi seen an appreciation this strong. 0.56%… I think this is in reaction to the widespread weakness of the dollar, and the very strong performance of the Japanese yen, which is the best performer overnight. But this move by the renminbi is quite impressive and something that we need to think about even more than just a strong overnight move.

If the U.S. dollar strong trend is truly ending, as I do believe it is, then we could very well see more appreciation in the renminbi. But even if the strong dollar trend holds on by the skin of its teeth, I think the renminbi has the potential to reverse some of the downward moves it has seen in the past year.

In the Eurozone this morning, they will print their own 1st QTR GDP report, and here, they are looking for any kind of growth they can get. Shoot Rudy, they would love to have the 0.5% print from the U.S.! But any sign that GDP is growing, even if by a witch’s hair, would be good for the euro, which is stronger today and within spitting distance of 1.14 as I write. The euro was at 1.14 and higher a couple of weeks ago, only to see the rug pulled out from under it, but there’s nothing but this GDP report today that could do that at this point today. We might see something from the Eurozone before I send this off to the reviewers this morning, so I’ll keep my eye on that.

The price of Oil has jumped higher again this time up to $46.60 this morning. And this move by Oil has the Petrol Currencies flying high this morning! The Canadian dollar / loonie is trading at 80-cents this morning. The loonie hasn’t seen 80-cents in a month of Sundays, and the Russian ruble is trading below 65, which is good, and the Norwegian krone has the pedal to the metal as I write. The real hasn’t opened up yet, but I would think this news from the Oil sector would drive the real higher too.

Speaking of Brazil. The news on the impeachment process has dried up this week, and I have to wonder if that means there are some smoky back room deals getting worked out, because if President Rousseff is impeached for illegal stuff, then when she isn’t President any longer, she could be jailed for those illegal things, so I would think that this is the dearth of news is all about dealing with Rousseff when she isn’t President any longer.

Let me also repeat something I’ve said a couple of times now in previous Pfennigs, and that is all this real strength is fine, but what happens when the current administration is removed? What are the plans to revive the Brazilian economy? That’s like the Sword of Damocles hanging over the real right now..

The Antipodeans (A$ and kiwi), are stronger this morning, but their rallies are muted somewhat given the moves in renminbi, yen rubles and euros this morning. It’s nice to see the A$ settle down after a crazy week of peaks and valleys. Yesterday, I told you that the Assistant Gov. Reserve Bank of Australia, is due to speak, and the markets are holding their breath fearing what he might say, as he has proven to be quite quotable in past speeches. The Assistant Gov.’s name is Guy Debelle, and if you Google his name, you see pictures of him. He looks like he’s too darn young to be the Assist. Gov. of the RBA!

Well, the Eurozone GDP data just hit the screens, and I don’t’ see anything holding the euro back from gaining more ground today! Eurozone 1st QTR GDP which was expected to be 0.1%, actually grew at 0.6% VS the previous quarter and was 1.6% higher than a year earlier! I would say that’s getting off the mat, eh? I haven’t seen the individual member countries data yet, but would say that I think that the Club Med countries had to have recovered nicely to finally assist Germany with the heavy lifting of the Eurozone economy. But then, like I said, haven’t see the detailed data yet.

Percy Sledge is singing his song: When a Man Loves a Woman on the iPod right now, so I’m going to stop typing and listen to this great song, I’ll be back in a minute. OK, did you miss me while I was gone? HA! Sorry about that, but there are songs that I do stop and listen to no matter what I’m doing! And this was one of those “songs”.

Well, Gold is kicking tail and taking names later this morning, folks.. $1,250? No worries! No wait! I don’t want to get cocky here, just because Gold has climbed to $1,280 in the early morning trading, I certainly don’t want to tick off the price manipulators, it’s not like they haven’t whacked Gold by $30 in a day before, right? But again I want to point out that with the Fed sounding dovish, GDP dropping to a 2-year low, and rate hikes now on the back burner, Gold is in the spotlight once gain. And I can truly say that I’ve waited for this to get going for 4 years.

I’ve told you before how much I like the weekly newsletter written by Jared Dillian titled: The 10th Man, which is published by www.mauldineconomics.com . Yesterday, Jared was talking about all the talk of getting rid of the $100 bill.. I’ve talked about this before, in my ban on cash talks.. Let’s listen in to what Jared has to say here. “Think about it-in a world without cash, gold (and silver) becomes the currency of anonymity. You can see how this will play out: they ban cash, people start using gold. well, now we have to make it illegal to hold gold, because gold is the money of the underworld.

How much will gold be worth then?

This also speaks to the need to hold gold in physical form, not in “paper” form. I’m not one of these people who distrusts securitized gold or gold futures, but if it ever becomes illegal, holding ETFs or futures will do you no good whatsoever.

I actually think it’s best to hold physical gold as well as “trading gold.” – Jared Dillian The 10th Man..

Alrighty then. Some of the weak dollar trading today could be attributed to month-end position squaring and close outs of losing trades. So, it’s not all a result of the weak U.S. GDP data from yesterday.

I saw on Bloomberg (http://www.bloomberg.com/news/articles/2016-04-27/currency-trading-s-20-drop-raises-specter-of-flash-crash-future ) an article that I can agree with given the slowdown that we’ve seen.

“Currency Trading’s 20% Drop Raises Spector of Flash-Crash Future”. Ok, I’m not really concerned about the Flash-Crash stuff, but more concerned about the drop in the volume of currency trading. and according to Bloomberg, “the World’s biggest financial market has shrunk by 20% during the past year and a half. The three largest trading platforms saw trading volume fall to $538 Billion per day last month, from more than $669 Billion in 2014.”

I see this all becoming a thing of the past if the strong dollar trend is really ending, because that will bring investors into the currencies once again for the wrong reasons, but still they can be educated about how diversification using currencies and metals reduces the overall risk to their portfolio, and soon they will be holders and not “traders” of currencies. Now that brings me to my soapbox. I step up , tap the microphone, testing, testing, can you hear me in the back? Good. Because you’re going to want to pay attention here.

Buy into weakness, sell into strength. These are words that my first mentor, Roy Fischer, taught me. I’ve always held these words as my foundation of when I buy and when I sell. There’s no use selling when an asset is already falling like a rock, that’s like attempting to catch a falling knife, it’s going to cut you, and you will bleed. And there’s no use in buying an asset that’s already strong, you’ve missed the “fat” of that trade. Why do I bring this all up now? Because, if what I’m seeing is real, and that is the end of the strong dollar trend, then the time to buy non-dollar assets is now, before everyone else sees this is what’s happening, and the taxi driver tells you he bought some euros.

Now that might sound like I’m telling you what to buy, but I’m not. I’m suggesting that you to look to buy something non-dollar, and see if this ending of the trend plays out, because I can tell you from experience that when the end of the trend does play out, the currency volumes will rise once again, and I don’t think you’ll want to miss out on that! REMEMBER THIS IS IMPORTANT: THIS IS JUST MY OPINION AND I COULD BE WRONG! Late, in 2001, I wrote a White Paper titled: The Decline of the Dollar. Early in 2002, the weak dollar trend began.

Today’s Data Cupboard has important data for us to look at for clues. Two of my faves: Personal Income and Spending for March will print, along with the Fed’s preferred Inflation data, the PCE (Personal Consumption Expenditures). Spending in the U.S. is a very important piece of the economy, folks. There’s no question about that, and here’s where the weak GDP data will bear the fruit. Spending in the U.S. in March is expected to grow just 0.2%, and the PCE to grow just 0.1%… That means consumers weren’t spending like the Fed and the Gov’t or more importantly the economy, needs for them to be spending. There are quite a few ideas/ thoughts out there that go into why consumers aren’t spending like they used to, and I’ll give you my top three.
1. Increased healthcare costs
2. Wages that haven’t increased
3. Fear of another financial collapse

So, Gold added $20 ($20.60) yesterday. And is up $6 this morning so far. Silver added 31-cents to its price as it climbs closer to $18 every day. I told you last week that both Hedge Funds and Institutional managers had turned bullish on Gold (& Silver). And I think that this bullishness is playing out now. For I don’t see any evidence that the short paper trades are getting reduced. Although I would think that if Gold hits $1,300 that those short paper trades will begin to bleed. And will have to be looked at being covered. but that’s just me being me.

To recap, the weak 1st QTR GDP (0.5%) sent the dollar on a ride down the slippery slope yesterday, overnight and through this morning’s sessions. Some of the selling of the dollar could be attributed to month-end position squaring, etc. But most of it is because traders are seeing the light now, that the Fed can’t hike rates, shouldn’t have raised rates in December, and all those dollar longs based on future rate hikes have to be reversed. China raises value (appreciates) the renminbi by the largest overnight move since they dropped the peg to the dollar in July 2005! The price of Oil soared overnight (is getting backed off a little this morning though, but still a nice move) and the petrol currencies all have their respective pedals to the metal. And Chuck gets on his soapbox about trading philosophy.

Before I head to the Big Finish today, I wanted to bring to your attention the news that the Big Boss, Frank Trotter, will be the Sunday Pfennig scribe this week. Frank will be talking about inflation, and all sorts of other things associated with inflation. I would makes certain that you open that email up on Sunday morning and read it. And for those of you who don’t get the Pfennig by email, be sure to go to the Pfennig’s website: www.dailypfennig.com

For What It’s Worth. Well, traders have finally come around to the fact that the Fed can’t hike rates any time soon, but that didn’t stop a former fed member from taking them to the woodshed for not hiking rates! I found this here: http://www.newsmax.com/Finance/StreetTalk/fed-rate-hike-correction-fisher/2016/04/27/id/726082/?ns_mail_uid=34436709

And here’s your snippet: “The central bank’s next interest rate hike will surely cause market pain, but the Federal Reserve should just get it over with as soon as possible, former Dallas Fed President Richard Fisher said Wednesday.

“I would be prepared when they move – and I hope they move sometime in June – there’ll be a settling in of the market place. There will be a correction. Suck it up. Deal with it. That’s reality,” he told CNBC.

Fisher said the Fed has been unwilling to tighten monetary policy because it fears the potential resulting market volatility and economic weakness.

“The Fed has the markets on Ritalin, trying to keep the mood very smooth, keep volatility down as much as possible. As soon as they hint that they might remove that, then they create the problems that they’re afraid of,” he said.”

Chuck again. Yes, I agree that with Dudley on the last thought, but I don’t agree with him on anything else he had to say. But he was a member of the Fed during most of the medicating of the markets, so I don’t think he should be too hard on the Beaver, Ward..

Currencies today 4/29/16. American Style: A$ .7630, kiwi .6985, C$ .7998, euro 1.14 (it just hit this level! I told you that the good GDP would help the euro today!) sterling 1.4615, Swiss $1.0382, . European Style: rand 17.1710, krone 8.0840, SEK 8.0410, forint 273.78, zloty 3.8565, koruna 23.7080, RUB 64.22, yen 107.30, sing 1.3430, HKD 7.7580, INR 66.33, China 6.4845, pesos 17.16, BRL 3.4889, Dollar Index 93.33, Oil $45.56, 10-year 1.84%, Silver $17.85, Platinum $1,063.12, Palladium $628.23, and Gold.. $1,280.00

That’s it for today. Well, it’s been a long week for yours truly, but I made a deal with our little Christine yesterday, and I’m buying and she’s flying, for breakfast sandwiches this morning for the trading desk. I used to do that every week when I sat on the desk, but I no longer sit out there (they kicked me off the island HA!) Cardinals go 4-3 on the road trip out west, not bad, but not really good either. But my dad taught me that if a team plays .500 on the road, and .750 at home they will win the pennant, so there you go! The Great Carlos Santana takes us to the finish line today and is playing a remake song: She’s Not There. It was originally a Zombies song from 1965, I believe that was the year, and it’s one remake that’s better than the original, only because of Santana’s guitar playing! He did this song when I saw him a few years ago, with my son Alex. Chris Gaffney has called for a Happy Hour celebration today, to honor our little Christine on her 15 years at EverBank, and Antione Lawrence for his 5 years here! So, hopefully it will remain sunny today, and everyone can make it a Fantastico Friday! Be Good To Yourself!

Chuck Butler
Managing Director
EverBank Global Markets
Editor of A Pfennig For Your Thoughts
1-800-926-4922
https://www.everbank.com