China Fails To Meet Expectations With Growth.

* No Chicken Littles today.
* Calm removes need for safe havens.
* U.S. Data has rough day on Friday.
* Gold miners talk of Peak Gold for this cycle.

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

Good Day. And a Tom Terrific Tuesday to you! Little Feat greets me this morning with their live version of the song: Dixie Chicken. Colleague, Aaron Stevenson admits to loving this song, so I’m somewhat unhappy that he’s not here to hear it! HA! I don’t wish getting up this early on anyone, for those of us that do get up this early, wish we didn’t! But we do, and life goes on. Sad news yesterday in the form of news that Glen Frey had died. Glen Frey of the Eagles, and solo stuff, was only 67. Last week, David Bowie, this week Glen Frey, will there be a 3rd shoe to drop? I certainly hope not!

The Big News overnight came from China, where 4th QTR GDP didn’t meet expectations of 6.9%, printing instead at 6.8% in the QTR, and finishing the year at 6.9%, missing the 7% target the Chinese Gov’t had set for the data.. The markets however, didn’t go all Chicken Little on us, and there’s a positive tone to the currencies this morning, except the euro. I have to say I’m quite happy to see that the markets didn’t panic over the decline in 4th QTR GPD and for the year, especially given the facts that the official interest rate and the Reserve Ratio Requirement (RRR) both were cut by 100 Basis Points in 2015. I can see the Peoples Bank of China (PBOC) shrugging their shoulders and asking what else they could have done to help the economy meet the 7% growth target..

I think what we’ll see going forward in China is more stimulus. And I think that’s why the currencies have a positive tone to them this morning. The PBOC did set a negative fixing for the renminbi overnight, but a small one that didn’t upset the markets. For the record, though. GDP didn’t meet 2014 expectations either, falling just short like it didn’t in 2015. 2014 actual was 7.14%, and 7.15% was expected, followed by 2015 printing at 6.9% VS 7% expected.. So, it’s not like this is the first time this has happened to the Chinese Gov’t.

The Aussie dollar (A$) is one of the better performers overnight, along with its kissin cousin across the Tasman, the New Zealand dollar / kiwi. These two currencies were driven like a rental last week, but this week they’ve been given a reprieve. The kiwi rally might be short-lived though, as later today, we’ll see the Milk Auction prices, which last month showed a huge drop. Another data print like that, and the stuffing could be knocked from kiwi. And there are no expectations that Milk prices will rally, given the slowdown in the region.

The price of Oil had an awful day on Friday, and yesterday, with the U.S. on Holiday, the price of Oil tried to hold on for better days, and overnight, Oil price’s hopes and dreams became reality, when a rebound came for Black Gold, Texas Tea. This rebound appears to me to be what they call in the markets to be a false dawn. As there’s nothing behind this rally folks. No Wizard behind the curtain, no one or no one thing that would keep Oil on the rally tracks.

Recall that last week I told you about the call that James Rickards has made regarding the next hit to the dollar, and that it could come by this coming Saturday. I do believe that he’s talking about the Saudi Arabian riyal which is pegged to the dollar. I do believe that the thinking here is that the Saudi’s have no other choice but to break the peg to the dollar, which could open up a knarly can of worms for the dollar. Remember, the Saudi’s made a deal with Henry Kissinger back in the early 70’s to peg their currency to the dollar, and only sell their Oil for dollars, thus influencing the other Arab countries to do the same, in exchange for protection for Saudi Arabia from the U.S. OK, I digress there, the point I was trying to make above is that if the Saudi currency is no longer pegged to the dollar, it appears to be just another hit to dollar holdings, as the Saudis wouldn’t have to hold so many dollars in reserve any longer. But on the outside, it could very well mean that the agreement to only sell Oil in dollars begins to crumble, and if it crumbles in Saudi Arabia, guess where it goes next? Uh-oh! That’s all just speculation though folks. there’s nothing concrete here, so don’t go all Chicken Little on me. I’m just speculating what James Rickards is thinking, I have no inside information, or anything like that.

The U.S. stock market took one to the chin on Friday, after another weak data print in the U.S., but let’s not kid ourselves, stocks have been overvalued for some time now, so it wasn’t weak Retail Sales that pushed them over the ledge. the weak Retail Sales helped facilitate the push over the ledge, but that’s about it!

Speaking of the weak Retail Sales data. Get this. On Friday, the U.S. economic data was just plain awful! Retail Sales for December printed a negative -0.1%, and no comments from the peanut gallery, because the data through and through was negative! I was ranting about how this was unbelievable data given that December is the month where tons of money changes hands, in Retail Sales, but the data was negative VS the previous month. My wife questioned the data too, given what she knows about how much money is spent in December. So, it’s not just me folks, and trust me on this, I rarely have an agreement on ANY subject with my wife! She will usually argue with me, just for the sake of arguing! So, to get her in agreement with me on this was rare. About as rare as a negative Retail Sales print for December!

I mentioned above that the euro wasn’t participating in the currency rally today. What has happened recently is that the euro is considered to be a “safe haven currency” So, when there’s fear in the markets, the euro rallies, and the rest of the currencies are on their own, but when there’s calm in the markets, the euro gets sold, with the rest of the currencies find their way to the rally tracks. And that’s where we are today. There’s relative calm in the markets so far.

The Japanese yen is caught up in this same trading pattern, as the currency traders have the yen pegged as a “safe haven currency”. So, today is not a good day for yen. I read a report on the Bloomberg this morning that put a smile on my face, for they mentioned a name from the past. Yes, the Old, “Mr. Yen” as he was called back in the day, the former official of the Ministry of Finance in Japan, Sakakibarra. Mr. Yen, offered up his two-cents on yen direction, saying that he thought that yen could continue its current rally and make its way to 110 (currently at 118) and still not make it difficult for current PM Abe, to achieve his goals for the Japanese economy. I think Mr. yen, should stick to his retirement rocker, and leave the currency forecasting to others, because yen, to me, has little chance of rallying to 110, right now. About as much chance as Chuck competing in an Ironman competition! HA!

Speaking of the so-called “safe havens” backing off this morning, the same holds true for U.S. Treasuries. there was a point on Friday, where the 10-year yield dropped below 2%… But that didn’t last long, and today the yield is back to 2.06%… I have something for you in the FWIW section today on Treasuries, you won’t want to miss that!

The Best Performer overnight was the Russian ruble. With the price of Oil rebounding, and some indications of interventions, the ruble has rebounded from a brief visit to the 80 handle for the currency. It’s too early to tell if the Oil rebound has staying power, or is it just another tease. So, let’s record this ruble performance and move along, we certainly don’t want to get all lathered up about it, given that we don’t know which direction the price of Oil is headed. I think I have an idea about that, but that’s all it is. just an idea. and I already filled your head with my idea on what James Rickards is maybe talking about!

I also mentioned above that the PBOC set a negative fixing on the renminbi overnight.. It was a smallish move on 60 ticks, so it didn’t upset the currency rally and the applecart. I read this weekend a piece of research on China, and from it I took that the researcher believed that the PBOC had reached a level with the renminbi that it was comfortable with, and that there would be no more large negative moves in the currency, unless the Fed continued with their rate hikes.

Speaking of the Fed and their rate hikes. One would have to think that the Fed members are barking up the wrong tree with calls for rate hikes after viewing the data cupboard prints from Friday. So, let’s go through these. but first put away the sharp objects!

The U.S. Data Cupboard from Friday didn’t have a good day. Besides the negative print from Retail Sales, we also had, Industrial production for December, print negative -0.4%… Capacity Utilization drop from 76.8% to 76.5%… PPI (wholesale inflation) print negative, -0.2%, The Empire (NY region) Manufacturing Index fell to a negative -19.4. And. for the record, the U. of Michigan Consumer Confidence survey. Improved this month! ARE YOUR KIDDING ME!

That’s right! Consumer Confidence improved! So, Consumers see things looking brighter, when in reality they are about as dark as they can be, without falling into a dark abyss. One thing that most economists completely miss, folks. Is the Capacity Utilization data. This is one of the few forward looking pieces of data that we get, for it tell us at what rate the installed productive capacity is working. So, if this % rises, then the country is putting things, people, etc. to work. And vice versa if it drops. and it has been dropping lately folks. Another hole punched for our ticket to Recessionville.

Oh, and after this rotten day of data my 4th QTR GDP Tracker has fallen to 0.8%… And to think that everyone is up in arms that China’s GPD fell to 6.8% in the 4th QTR! Oh, and thanks to the addition of Research and Development to the GDP calculation, otherwise we would be in the negative territory here in the U.S. Whew! Good thing the Gov’t decided to add R&D to the GDP calc. last year! Now, who here can tell us how R&D adds to growth in the economy? Come on, no one knows? Oh, it’s so simple!… It doesn’t! but I digress, let’s move on before I say something that gets me into trouble!

With the so-called “safe havens” getting sold this morning, Gold joins in.. But not to worry too much, Gold is down only $3 at this point of the morning. It is being reported that India imported more than 100 Tonnes of Gold in December. WOW! So physical demand is still good, folks.. There was another story that flew by on the screens this weekend, and that is that Gold miners say that Gold production has reached its peak, for this cycle. In other words. Given the low price of Gold, no more Gold at that price will be mined. Now, we’ve had a problem with price discovery with all the price manipulation, but if there’s not enough supply to go with all this demand for physical Gold, something has to give. right?

To recap. China’s 4th QTR GDP slipped below expectations at 6.8% VS 6.9% expected, and the year on year print also missed its target printing at 6.9% VS a target of 7%… But no one went all Chicken Little, and the markets remained relatively calms. The PBOC fixed the renminbi weaker, but by only 60 ticks, and so the so-called “safe havens” have backed off and the rest of the currencies are on the rally tracks. The Russian ruble is the best performer overnight, as the price of Oil bounces higher. But is it just another false dawn? And Chuck speculates what is being discussed in certain circles by James Rickards regarding his call that the next hit to the dollar could come this Saturday.

For What It’s Worth. This was found on Zerohedge.com and is quite telling, folks. You can read it all here: http://www.zerohedge.com/news/2016-01-17/foreign-central-banks-furiously-dump-us-treasuries-record-47-billion-sold-first-two-

Or, as always here are the snippets. “It’s not just stocks have a terrible start to the year, in fact the worst start in history: so is the amount of US Treasuries held in custody at the Fed, a direct proxy for the holdings of foreign central banks, reserve managers and sovereign wealth funds who park owned TSYs at the NY Fed for convenience.

According to the latest Fed data, after a drop of $12 billion in the first week of the year, another $34.5 billion in Treasuries held in custody was sold in the week ended January 13, bringing the total to just $2.962 trillion, below the previous recent low recorded in early November, and at levels not seen since April 2015.

One trader who has put all this together, and has linked it to the abnormal moves in the Treasury swap market is Ice Farm Capital’s Michael Green.

His conclusion is that “swap spreads appear to be blowing out because foreign holders of treasuries, namely China, are selling them at a record pace to defend their currencies. Currency levels are under attack in China, Saudi Arabia and now Hong Kong. The specter of 1997-1998 is again haunting the markets.”

Chuck again. What he’s talking about in mentioning 1997-98 again is the Asian meltdown and the Long Term Capital meltdown that almost collapsed the financial markets.. I don’t think he needed to be so dramatic. But then he has that right! Just like when I get on my soapbox!

Currencies today 1/18/16. American Style: A$ .6938, kiwi .6485, C$ .6905, euro 1.0870, sterling 1.4475, Swiss $ .9955, . European Style: rand 16.6355, krone 8.8415, SEK 8.5765, forint 289.23, zloty 4.0810, koruna 24.8380, RUB 78.52, yen 118.00, sing 1.4345, HKD 7.8055, INR 67.64, China 6.5596, pesos 18.10, BRL 4.0277, Dollar Index 99.24, Oil $29.90, Silver $14.02, Platinum $828.05, Palladium $502.68, and Gold. $1,085.44

That’s it for today. Well, did your NFL teams win? I really wanted to see the K.C. Chiefs beat the Patriots, but that didn’t happen, and the rest of the games I didn’t really care who won. It looks like the same-o for the Patriots though, and I’m not talking about cheating, I’m talking about how it looks like they will make their way back to the Super Bowl. UGH! Most of the people around me down here are from the North East, and root for the Patriots, I just can’t get used to that! The sun is rising. should be a good day here, chillier than usual, but a good sunny day. Cardinals Pitchers and Catchers report on Feb 17. So let’s see now that, less than a month away! YAHOO! We had some torrential rains storms come through here on Friday and Sunday morning, but in between it was beautiful.. Had a nice lunch with friends yesterday, as I begin to feel more and more myself, after getting whacked last week. Alrighty then.. time to go. I hope you have a Tom Terrific Tuesday!

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