Dollar Days Appear To Be Over!

Chuck Butler’s A Pfennig For Your Thoughts

July 6, 2017

  • Dollar strength fades…
  • Factory Orders’ print is awful!
  • Fed Heads disagreeing?
  • Gold sees 2 days of gains!

Good day… And a Tub Thumpin’ Thursday to you! This week is so strange, as it feels like there were two Mondays! It’s an infusion Thursday for me, so I won’t be doing any Tub Thumpin’, so I leave it all up to you!  I feel like I repeat myself every other Thursday, so forgive me for that! The Moody Blues greet me this morning with their song: New Horizons, from one of my all-time fave albums: Seventh Sojourn..

The “dollar day” on Monday, that spilled into Tuesday, with thinned out volume, due to the U.S. Holiday, began to give back some ground it took in trading yesterday and overnight. The Dollar Index has dropped again, and looks like it will head south of 96 soon. The U.S. received some more very ugly economic data, and the Fed Heads can’t seem to agree on when to start their unwinding of the balance sheet.  Those two things look to be the culprits undermining the dollar’s strength today.

Gold has seen two consecutive days of $3 gains, which I’ll take given the shiny metal has not been able to find a bid in the past 10 days.  I read where UBS (Union Bank of Switzerland) wealth advisors are telling their clients to buy Gold around this area ($1,200) because they like the idea of the insurance that Gold provides an investment portfolio. Hey! I don’t make this stuff up folks.. Check out the article I saw here:https://www.bloomberg.com/news/articles/2017-07-04/ubs-wealth-unit-recommends-buying-gold-near-1-200-for-insurance

And the price of Oil saw some slippage yesterday, but then recovered some of the slippage when the supplies data showed that Oil & Gas supplies had fallen in the past week…  The U.S. Strategic Crude stockpiles have fallen to the lowest level in 12 years, and the White House has pledged to sell more…  So, the price of Oil has the old give and take going for it right now…  You see, the U.S. shale producers are doing their best to keep the supplies at high levels… So, you have high production, VS the selling of the supplies…  And the price of Oil appears stuck in the mud with that scenario going on.

That means the Petrol Currencies are also stuck in the mud…  UGH! But the Petrol Currencies that have other things going on to support their respective currency’s value, are doing just fine… That list is short, but includes the Canadian loonie, and Norwegian krone..

The euro, which saw the brunt of the dollar’s strength in a bad way, that is, has strapped on its boots and is picking itself off the floor. The Big Dog, euro, is sneaking up on the 1.14 level again this morning, and if we see more weak data from the U.S., which in my humble, country boy, opinion, is a given, then we’ll see more dollar selling..

Aussie and N. Zealand’s currencies have also picked up the pieces (great song by the Average White Band) and returned to the rally tracks this morning. But currencies like the Mexican peso, Indian rupee, Brazilian real and Russian ruble, can’t find their way to the rally tracks.  So, we have a mixed-bag-o-currencies today, but for the most part, the dollar is getting sold…

As I said above, a reason for the dollar weakness this morning is the news that came from the Fed’s FOMC Meeting Minutes where it was revealed that the Fed Heads are deeply divided in when to start their unwinding of the balance sheet. The Fed has said that it wants to begin the balance sheet plan this year. The minutes of the June meeting said several officials wanted to start “within a couple of months,” while others favored waiting, suggesting that officials are debating whether to begin in September or wait until December.

I’m not a fan of reducing the balance sheet right now, for when they reduce the balance sheet it will be like hiking rates, and we don’t need additional rate hikes at this time, when the economy is weakening like it is doing right now!

Last year, I explained to you, dear reader, how the Fed works, these days, with the decisions being ironed out before the meeting so that it appears that there is no dissension going on… Fed Chair, Yellen, Fed Vice Chair, Fischer, NY Fed President, Dudley, and Fed Gov. Brainard, form the nucleus of the decision makers… Once they agree, they then make certain the rest of the Fed voting governors are in line with the decision…

Knowing this scenario exists, I found it interesting that there was a a division of opinions on when the unwinding of the balance sheet would begin…  At the last meeting where the Fed hiked rates, there was one voting member that voted against the rate hike. Neil Kashkari, Fed Minneapolis President..  We need more Fed Governors like this guy, folks… One that would stand up to the “decision making nucleus” at the Fed…  It used to be Richard Fischer of the Dallas Fed, but he retired from the Fed a few years ago… Then it appeared that Fed member, Rosengren, was going to be the flag bearer for questioning the “decision making nucleus”, but that didn’t last long either…

OK, I didn’t mean for this to become just a letter about the goings on at the Fed! Besides if I talk about the Fed too much I begin to break out in a rash! HA! So, let’s switch over to the other reason for the dollar weakness this morning, which would be the awful print of Factory Orders for May.

Yesterday, The U.S. Data Cupboard had the May Factory Orders print for us yesterday, and like I said it would print, the print showed a decline of -0.8%, and April’s negative print was revised downward from -0.2% to -0.3%… I also saw a report that showed Consumer spending on long-lasting durable goods dropped at a 1.6% annual pace in the first quarter, the weakest showing since the second quarter of 2011.

Today’s Data Cupboard has the Trade Deficit for May, which will be around $46 Billion, The ADP Employment Report, which is supposed to be the appetizer for tomorrow’s Jobs Jamboree, but never really turns out like that, because of the games that the BLS plays with the Jobs numbers. And of course as on every Tub Thumpin’ Thursday, we see the Weekly Initial Claims data…

I don’t see the dollar getting love from any of this data today, so the currencies should be able to add to their gains from yesterday and overnight. Tomorrow is the Jobs jamboree, and longtime readers know that I just don’t care about the BLS Jobs report any longer, because of the hedonic adjustments, and the way the markets take the report, hook, line and sinker, and then when the revisions are made later down the line, no adjustment is made…  So, I don’t care any longer, but the markets do, so I have to report on it, and right now the so-called experts are calling for job creation of 177,000 for June…  No great shakes, no reason to believe that wage inflation is going anywhere either!

Well, have you noticed the rise in the yield on the 10-year Treasury bond in recent days? I highlighted it last week, pointing out that the yield has risen by 22 Basis Points…  Well, the worst of the move higher in yield seems have been put behind us… This bond selloff seems to be overdone in my opinion… Now, I’m not saying that yields should drop to the 2.15% area again right away, but bond yields shouldn’t be rising this quickly either! Things in the U.S. are not moving in the right direction, and that’s always the things that moves bond yields lower… Remember, yield and price on bonds move opposite of each other… So, when the yield goes down, the bond price goes up, thus signaling a bond rally…

To recap…  The dollar days on Monday and Tuesday have come to an end, and the currencies, for the most part, are gaining back some lost ground. The Big Dog euro, is sneaking up on the 1.14 level once again. The price of Oil saw some slippage, but gained some of the slippage back, when it was revealed that U.S. Supplies of Oil & Gas have dropped to 2011 levels. Gold was allowed to gain $3 again yesterday, thus marking two consecutive days of $3 gains. Chuck points out that UBS wealth advisors are recommending to their clients to buy Gold for insurance…

For What It’s Worth… Well, thanks to Ed Steer, and his letter www.edsteergoldandsilver.com because that’s where I found this… And since I’ve made such a big thing out of the “Consumer having tapped out” this article on Zero Hedge makes a lot of sense to print…  You can find it all here: http://www.zerohedge.com/news/2017-07-05/whats-going-us-consumers-store-traffic-crashed-8-july-4th-weekend

Or, here’s your snippet: “First it was auto the auto parts suppliers getting hammered after O’Reilly Auto announced unexpectedly poor results (duly blamed on “mild weather” and weaker than expected Hispanic spending) and tumbling the most in 5 years, and then it was the retail REITs turn, after channel checks at Prodco Retail Traffic Analytics revealed that the US consumer continued to hibernate into the July 4th weekend with North American store traffic 8.1% lower in the week leading up to the July 4 holiday weekend, a steeper drop than the year-to-date trend of down “only” 6.6%. In the week ending July 1, with footfall at luxury retailers down 9.7%, and 8.3% weaker at apparel stores, Bloomberg reported.

The justifications for the abysmal results were legion: retail Q2 sales results may be impaired by weak traffic, as consumers still prefer digital, and they swap shopping for travel, dining out, or outdoor recreation. Shopping less in-store continues to hurt retailers’ ability to prompt unplanned purchases.

The companies impacted the most included retailers such as Abercrombie & Fitch, Macy’s, J.C. Penney, Tailored Brands and Nordstrom reported declines in traffic and same-store sales. And since they’re among the tenants of REITs Kimco and General Growth, the the S&P 1500 retail REITs index fell as much as 2.8%, the most intraday in two months, with all 24 members declining.
Based on the above, it appears that 2Q retail sales will once again be hurt by overall weak spending even as Amazon continues to wreak havoc among the traditional retail sector.
Abercrombie & Fitch, Macy’s, J.C. Penney, Tailored Brands and Nordstrom all reported declines in traffic and same-store sales.

And while many would be first to blame the (near) monopolistic dominance of Amazon in the online retail space, reading between the lines confirms that U.S. households are aggressively shrinking their overall spending basket, as store checks by Retail Metrics throughout the month found continued soft traffic, although the May retail deterioration appears to have stabilized at a low level. This, despite elevated promotional levels at both specialty apparel retailers, and department stores.”

Chuck again… I was having a discussion with a couple of ladies the other day, and they insisted that it’s all Amazon’s fault for the all the retails store closings, and I attempted to correct them and say that some of it’s Amazon, but the real culprit is a U.S. Consumer that has tapped out..  They wouldn’t listen to me though… UGH!

Currencies today 7/6/17… American Style: A$ .7596, kiwi .7268, C$ .7733, euro 1.1381, sterling 1.2950, Swiss $.9651, … European Style: rand 13.4732, krone 8.3719, SEK 8.4624, HUF 272.15, zloty 3.7369, koruna 22.9845, RUB 59.81, yen 113.34, sing 1.3833, HKD 7.8104, INR 64.81, China 6.7991, peso 18.33, BRL 3.3003, Dollar Index 96.09, Oil $45.88, 10-year 2.37%, Silver $15.97, Platinum $905.91, Palladium $843.97, and Gold… $1,223.00

That’s it for today..  I saw the sleep doc yesterday, and he showed me the difference in my sleep from before the CPAP to now about 6 weeks after the CPAP, and I was amazed at the change! WOW I told him even though I’m back on my chemo treatments, I don’t feel the need to take an afternoon nap any longer! Off to the infusion center now, I have to go quickly… YIKES I forgot the time!  The great Johnny Rivers takes us to the finish line today with his song: Summer Rain…  And with that, I hope you have a Tub Thumpin’ Thursday and Be Good To Yourself!

Chuck Butler

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