Consumer Spending Rebounds!

* Dollar backs off rally from Yellen speech .
* Aussie 1st QTR GDP beats expectations! .
* Yen becomes a “volatile currency”

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


Good Day. And a Wonderful Wednesday to you! And Welcome to June! Pfennig Tradition says that we start the month of June with this: June is bustin’ out all over, all over the meadow and the hill. Buds are bustin’ outa bushes and the rompin’ river pushes Every little wheel that wheels beside the mill! June, June, June, Just because it’s June! The Moody Blues greet me this morning with their song: New Horizons, which is a beautiful song from the Seventh Sojourn album, which is as I’ve stated many times before, is one of the 10 albums I would take to the island with me.

Well, the markets have had a day to see where the marbles ended up from the Janet Yellen speech on Friday. I talked about that speech yesterday, so I’m not going there again, except to say that although on Friday afternoon in thinly holiday traded markets, she moved the dollar stronger, it has been a case of “let’s wait-n-see what the Fed actually does”, and the dollar’s strength from Friday has faded against most currencies, not all, but most. So, the data becomes quite important, in my opinion, to what we will end up seeing what the Fed actually does. And even with all the rate hike rhetoric, there’s still only a 28% chance of a June rate hike according to the Fed Funds Futures..

The dollar today, is soft against the euro, Aussie dollar (A$), kiwi, krone, franc, krona, koruna, zloty, yen, and a few others, and the green/peachback is stronger today VS the ruble, renminbi, pound sterling, and a few others. Gold is flat and the price of Oil has slipped back below $49 this morning.

First things first. The A$ is stronger this morning after a better than expected 1st QTR GDP print, which came in at 1.1% VS the previous quarter, and 3.1% year on year. The Consensus was for just 0.8% growth in the 1st QTR. Now, do you think that the Reserve Bank of Australia (RBA) is trying to find something to hide behind, after they cut rates last month? I do. But maybe not, these Central Bankers have become so brazen about their moves. I was reading an article that dear reader, Bob, sent me by Charles Hugh Smith, that talks about the Kubler-Ross Famed Stages of loss: Denial, Anger, Bargaining, depression, and acceptance.

His theory is that Central Banks are in the “Denial” phase because they realize but won’t admit that all their trillions of dollars, euros, and yen have completely and utterly failed to achieve the desired result: “organic” (unmanipulated by central banks) expanse of productivity, investment and household earnings. it’s a really good article and I wish I could share it with you, but it’s a blog, and, well, we’ll just leave it at that! But I would think you could Google the “five stages of Central Bankers’ Failure, and you would find what you’re looking for!

WOW, I really left the trail there for a few minutes, eh? OK, back to the currencies and metals. Japanese yen is much stronger today, after falling through 110 to 111 yesterday, it’s back to trading with a 109 handle today. It’s pretty interesting to me how yen has become a “volatile currency”. You used to be able to have more fun watching paint dry, than watching the moves in yen. But that’s all changed in today’s trading, where one little piece of data, or some words mumbled by an official can get the traders all lathered up and buying or selling a currency like funnel cakes at a State Fair.

The European Central Bank (ECB) will meet tomorrow, and it is widely expected that ECB President, Mario Draghi, will keep all things unchanged. A couple of weeks ago, he might have been sweating bullets because of the strength of the euro, but since then the euro has gone from 1.15 to 1.11, 1.12-ish, and that’s much more acceptable to him. I’ve long said that Germany, the Eurozone’s largest economy, would be happy with a euro at 1.20, of which I call the Goldilocks level, not too strong, not too weak, just right! But not Draghi.. he’s not from Germany, and doesn’t share their fear of runaway hyper-inflation. And I would bet my bottom dollar that Germany’s Bundesbank members rue the day they allowed Draghi who ran the Italian Central Bank to lead the ECB. Just my opinion and I could be wrong.

Pound sterling is getting sold this morning on the latest poll taken that showed the “leave the EU” vote gaining on the “don’t leave the EU” vote.. This is all posturing to me, these polls are about as useful as the G in lasagna.. The U.K. is not going to leave the European Union / EU, but we are going to see one poll after another until the referendum at the end of this month. And with each poll we will see the gyrations in the pound. I would think that if you own the pound you would simply batten down the hatches and see what comes of the referendum. but that’s just me.

Gold was able to hold its early morning gains yesterday and add to them as the day went along, gaining back $10 of its nearly $100 of losses in May. That’s right, that’s what I said. Gold saw nearly $100 of losses in May. (on May 2nd Gold traded above $1,300, and on May 31 (before the $10 gain), Gold was down to $1,208 in early morning trading.) But I have to say that it sure does appear to me that $1,200 is the new base/ foundation for the price of Gold, given that it has not fallen below that level since overtaking it earlier this year. I sure hope I didn’t just put the Chuck’s kiss of death on the $1,200 level.

The price of Oil slipped back below $49 to a $48 handle in the past 24 hours. I don’t think this is any cause for concern to the “Oil investors”. Just gyrations. I read a report on Bloomberg yesterday about how Oil discoveries have shrunk to a 6-year low.. “about 12.1 Billion barrels of Oil reserves were found in 2015, marking the 5th consecutive year of decline and the smallest volume since 1952. Wait, What? 1952, that’s before I was born! So, that’s Old! I tell you this about these discoveries, not in attempt to get you to see that the price of Oil is going higher now. Shoot Rudy, only the Shadow knows that. I’m telling you this now, because of the effects that this declining Oil discoveries will have on the future of the Oil price..

Well, if data is going to be so important these next two weeks leading into the Fed meeting June 14 & 15, then let’s look at some of the recent data. Yesterday’s Data Cupboard yielded the Personal Income and Spending for May, the S&P/ CaseShiller Home Price Index, Consumer Confidence and a regional PMI from Chicago.

Consumer Confidence dropped in May, to 92.6 from 94.7 with respondents noting that jobs were harder to get. Hmmm. The Chicago PMI fell below the 50 level at 49.3 in May, and seems to be stuck in neutral for several months now. The Case/Shiller HPI was good, rising 0.9% in March, and as long as interest rates remain so low, I don’t see this changing. And then finally the Personal Income ticked higher in May 0.4%, But Personal Spending really outdid Income, as Personal Spending rose 1.0% in May. Holy credit card expenditures Batman, how did that happen? And where did all the money come from?

Ahhh, Robin, my good sidekick, we need to look under the hood, and see what consumers were spending their money on. Uh-Oh, I see a problem.

Rising gas prices. Just last week, I overheard a conversation on the desk between Aaron Stevenson and Mike “Cisco” Harrell, and they were discussing the huge jump in gas prices in just two days in the past couple of days. I had too filled my tank that morning, and noticed that I was paying 50-cents more per gallon than I was a couple of months ago. Hmmm, I thought to myself, “I wonder what that’s going to do to Personal Spending. And voila! Guess what went up in the past month? Personal Spending! Well, we can’t blame it all on rising gas prices, but we can say it’s a mixture of rising gas prices, and strong auto sales. Remember, those auto sales? I keep giving you loan data showing that everybody is buying a new car, and streeeeeccccchhhing the loan term. So, they can buy, “more car”. And Car “subprime loans” are the rage. Remember when Home Subprime loans were the rage? I think I recall how that all worked out. Do you?

In other data. Personal Income grew 0.4% in April. and that’s a good thing, for consumers that are paying through the nose for new cars and gas! But the biggest piece of data yesterday was the PCE (Personal Consumption Expenditures) and PCE, the Fed’s preferred method of tracking consumer inflation, stayed Steady Eddie at 1.6% this month, same as last month, and when you go back 12 months, is only up 0.3% from a year ago. A good thing to stop and remember here is that the Fed’s inflation target is 2%, and the last time I checked, and I know that nowadays you can get credit in math just for having the right formula but not the correct answer, I’m pretty sure that 1.6% is a far cry from 2%..

On a side bar. That getting credit for having the correct formula to a math problem but not the correct answer is going to go far at let’s say. NASA, or APPLE, or Google, or the list could go on for miles, and it makes no sense whatsoever to yours truly.

Today’s Data Cupboard has the ISM Manufacturing Index for May, which in April finally wrapped a tourniquet around the bleeding in this data that had begun in August 2014. And the index number had fallen each month since the August 2014 print. I don’t expect a huge rebound of any sorts this month, and would not be surprised to see the index number slip toward the 50 level again in May. The regional prints haven’t been good, but they never really seem to play into the National number. I know, doesn’t make sense to me either!

To recap. The markets have backed off their attack on the currencies that took place immediately after Janet Yellen’s speech on Friday. Still only 28% odds of a rate hike in June. Aussie 1st QTR GDP beat the expectations, and the A$ recovers from the recent selling, overnight. Yen has become a volatile currency. The latest poll in the U.K. has the “leave the EU” vote narrowing the gap and that has the pound on the run this morning. And does the Bundesbank wish they had rethought the idea of Mario Draghi as the head of the ECB? Chuck thinks so. Data will become very important in the coming two weeks ahead of the Fed meeting, so Chuck dives deep into some data.

For What It’s Worth. Well, I searched and searched for something I could use here this morning, and then I remembered that colleague and soccer great, Ty Keough had sent me a link on something yesterday afternoon, and it plays well here, so this is about how the Fed will be data dependent and can be found here:

Or, here’s your Snippet: “Investors betting the dollar’s May rally will continue face a major hurdle in a slipping U.S. economy and a Federal Reserve that promises to raise interest rates only if signs of growth and inflation warrant.

The U.S. currency posted its best monthly gain in almost two years on speculation the Fed is getting closer to raising rates as soon as June. Yet economic indicators in the world’s biggest economy rank among the weakest in the world, and data have underperformed relative to forecasts throughout the year, as measured by Citigroup Inc.’s Economic Surprise Index.

The soft economic outlook looms against the Fed’s mantra of data-dependence when deciding its tightening path. Growth in the manufacturing sector slowed, while job creation was around the least in seven months, economists forecast ahead of reports this week. The U.S. currency may reverse its advance against the euro and yen as the Fed will hold off on raising rates this year and in 2017, according to BNP Paribas SA.

“While the Fed wants the hike rates, they won’t get the opportunity to do so,” said Michael Sneyd, a foreign-exchange strategist at BNP Paribas in London. “The data front is holding the Fed back. The dollar’s going to give back some of its recent gains.””

Chuck again. Well, I think they pretty much are telling you the same things I’ve been telling you, that the U.S. economy is going nowhere fast. It’s always nice to see someone else on my bandwagon!

Currencies today 6/1/16. American Style: A$ .7260, kiwi .6805, C$ .7669, euro 1.1175, sterling 1.4450, Swiss $1.0101, . European Style: rand 15.6945, krone 8.3060, SEK 8.3305, forint 281.10, zloty 3.9340, koruna 24.19, RUB 66.91, yen 109.25, sing 1.3760, HKD 7.77, INR 67.45, China 6.5785, peso 18.50, BRL 3.6116, Dollar Index 95.55, Oil $48.37, 10-year 1.83%, Silver $15.99, Platinum $974.63, Palladium $542.85, and Gold. $1,218.00

That’s it for today. Well, today is darling daughter, Dawn’s husband, Jerry’s Birthday.. Happy Birthday Jerry! I know of no one that gets a bigger kick out of seeing his name in the Pfennig than Jerry! Cardinals continue to prove that they can beat the “below .500 teams” with another big win in Milwaukee last night. It’s against those “good teams” that they struggle, and had better figure it out soon, ¼ of the season is over now, it’s no longer “early”. Day 3 of me being at home alone was fine, even with me having stomach problems in the morning. And then Eric Carmen takes us the finish line today with his song: All By Myself. Did you know that Eric Carmen was the lead singer for the Raspberries? Then went solo. Oh well, I’m sure most of you have never heard of the Raspberries either! So see, you learn some cocktail trivia reading the Pfennig! Which reminds me I haven’t said this enough lately.. Thank you for reading the Pfennig, and I hope you have a Wonderful Wednesday
.. Be Good To Yourself!

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