Dollar Reserves Begin To Show Weakness

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

April 2, 2018

* China moves forward with their own tariffs!
* A heavy data week here in the U.S.

Good Day…. And a Marvelous Monday to you! And, welcome to April! One of my dear friends at my old office is named April, and for years I’ve called her April Showers… So, it’s her month! I’ve done this joke every April, so only new readers will not get it before the punch line. But if April showers bring may flowers, what do May flowers bring? The answer: Pilgrims… HA! Well, my beloved Cardinals could only win 1 of 3 in NYC, UGH! The NCAA Tournament Championship game is tonight: Villanova VS Michigan. I was saddened when Loyola of Chicago lost on Saturday… Eric Clapton greets me this morning as he and his bandmates Derek and the Dominoes sing their song: Layla… There’s a long juicy, gossipy story behind that song, but I won’t get into it here…

Well… Here we are in April.. Yesterday was Easter, along with April Fool’s Day, and Mother Nature decided to play a joke on us with some nasty weather, sleet that turned to snow yesterday. I’m dreaming of a White Easter… I think I may have a hit song there, you think? HA! We’ve had one day of sun since I returned to St. Louis, and the rest of the time, it’s raining and ugly outside… UGH!

It’s been very much like that with the currencies and metals in the past two weeks too. The markets are confused with the signals from the U.S. and China regarding their pending Trade War, and so with no real signs that this is going to take place, traders and such are not going out on limbs.. A bunch of chickens if you ask me! Make a call, invest some capital and see where it goes! Besides, today, China has gone ahead and place tariffs on 128 U.S. exports to China… Yes, they begin today, and this is no After April Fool’s Day joke, folks…

I’ve received quite a few emails from readers in the past week, jumping all over me for my stance on the Trade War. I tried to be as diplomatic as I could and told them to go jump in a lake! No… I really tried to explain my position, that I understood that the U.S. had been treated unfairly by other countries for years, with regards to Trade. But quite frankly, the problem with the things we make here in the U.S. and attempt to sell overseas is that they are too darn expensive… And we can thank the fact that our wages are much higher here than in other countries. So, the answer to correct that is to add tariffs to imported goods? That’s just one of the tools in the negotiation tool box.. And one that should only be used when nothing else works. Instead we’ve gone to the “anchor tool” right from the start… The only place we can go now is to back off, and look weak…

Besides, I’ve shown how past attempts by presidents to implement protectionism measures led to economic messes, and that’s what I’m fearful of, folks… And that’s my stance and I’m not moving from it! (people that know me personally, know I’m difficult to move! HA!)

The U.S. Data Cupboard, last Thursday, showed that Personal Spending only grew at 0.2%, that’s not the kind of consumer spending that the economy needs to grow, but don’t let that fact get in the way of more Fed rate hikes! On Friday, it was a holiday for the stock jockeys, and that gave the bond and currency guys the idea to take off early, and head for the Hamptons. So, we didn’t see much movement in the currencies and metals on Friday, for instance Gold added 60-cents…

The euro has inched higher after the PPT took the single unit to the woodshed last week. Yes, with Gold trading over $1,350 and the euro heading to 1.25, and stocks licking their wounds after a horrible trading day, the Plunge Protection Team stepped in and bought stocks and dollars… So, now a week later, stocks are still “iffy”, while Gold is up $8 in early morning trading and the euro is adding to its 1.23 handle.

While the euro and other currencies suffered from the wrath of the PPT, the Chinese renminbi took a different course, and had a good week. The renminbi was allowed to appreciate again last night, and I think they are allowing these appreciations to get under the U.S. President’s skin… To show him that these tariffs and a Trade War isn’t going to hurt the Chinese… That’s just my viewpoint on these nightly appreciations going on with the renminbi… And don’t forget that China had a good week last week as they introduced their new Oil futures contract that’s denominated in renminbi, and it was a HUGE HIT for China on the first day and on…

The Chinese will gain a much wider distribution of their currency with these Oil Futures denominated in their currency.. Getting Central Banks around the world to bulk up on renminbi in their reserves, and then completing the Opening of their capital markets are the last two steps the Chinese need to see happen before they allow a float of their currency, but considering where they came from 8 years ago, only having two more steps, means they’ve done a lot of work in these past 8 years, and should be commended… But then they ARE a Communist Country, but when they allow a float of their currency, we will be able to put the fact that they are a Communist Country on the back burner…

I like it when the renminbi is allowed to appreciate, because it allows the Singapore dollar (S$) to follow the renminbi’s lead. I’ve always like the S$ for the way they run their country, and the Monetary Authority of Singapore (MAS). The MAS does something that all Central Banks should use, and that is the used the value of their currency to fight inflation, instead of just willy nilly rate hikes…

Another country that’s ahead of China in the distribution and float of their currency is Russia… I was explaining Russia’s reserves to anyone that would listen to me yesterday. You see, as I’ve explained in the past, Russia decided to slow down the accumulation of other country’s currencies as reserves and instead bought physical Gold, and then in the past few years, while the dollar was still swinging a mighty stick, Russia’s reserves grew in value because they held Gold, and not euros, francs, etc.

Well, like I said above, Gold is up $8 in the early morning trading today, which is a good start to the day! And it should be gaining with all that’s going on in the world on April 2nd, 2018… But then that’s just me thinking out loud about Gold… One thing I’m going to highlight in the FWIW section today is the fact that the use of dollars in Central Bank reserves had fallen, with euros and renminbi picking up the slack. I’m sure Gold, if properly measured would be the biggest winner of this category…

For instance, the country of Pakistan is depleting their dollar reserves at the fastest pace in Asia, according to Bloomberg… Now, all of Pakistan’s dollar reserves aren’t being sold because of trade problems… keep that in mind… it’s just an example of how, what I talked about a couple of weeks ago is still going on, and that’s Central Banks selling their extra dollar reserves in preparation of a long sweeping downward move in the dollar because of the pending Trade War.

The U.S. Data Cupboard will be very busy this week with ISM (manufacturing index), Factory Orders, Car Sales and the ADP Employment Report that will print ahead of the Jobs Jamboree on Friday… Lots o’ data, and the dollar won’t be the beneficiary if the data disappoints like it has for the last 1/2 year.

To recap… Chuck’s singing I’m dreaming of a White Easter, and wishing he was back in S. Florida! The currencies and metals didn’t move much on Friday, as it was a holiday for the stock jockeys, that the bond and currency guys just piled on to. But Gold is up $8 in the early morning trading today, and China went ahead and began their tariffs on 128 U.S. products today…

For What It’s Worth… Ok, I already spoiled the surprise, if there is one, with the FWIW article today, which is about how the dollar reserves are falling and it can be found here: http://www.themalaymailonline.com/money/article/us-dollar-share-of-global-currency-reserves-hits-4-year-low-says-imf

Or, here’s your snippet: “Reserves held in U.S. dollars rose to US$6.28 trillion (RM24.2 trillion), or 62.7 per cent of allocated reserves, in the fourth quarter, from US$6.13 trillion, or 63.5 per cent, in the third quarter.

The share of U.S. dollar reserves declined to its smallest level since reaching 61.24 per cent in the fourth quarter of 2013, IMF data showed.

Ranked second behind the greenback, the euro’s share of global reserves reached 20.15 in the fourth quarter, up from 20.05 per cent in the third quarter. This was its biggest share in three years, but well below the single currency’s peak share of reserves at 28 per cent in 2009.
The yen’s share of currency reserves rebounded from a dip in the third quarter to 4.89 per cent, which was its biggest since the fourth quarter of 2002, IMF data showed.

China’s share of allocated currency reserves was 1.23 per cent, up from 1.12 per cent from the prior quarter. The IMF had reported the yuan’s share of central bank holdings for the first time in the fourth quarter of 2016.

IMF data also showed that global reserves climbed to US$11.425 trillion, which was the highest since the second quarter of 2015 and was up from US$11.297 trillion in the third quarter.”

Chuck Again… It’s all happening right before our eyes folks… I sure hope you’ve properly diversified your investment portfolio using currencies and metals!

Currencies today 4/2/2018… American Style: A$ .7683, kiwi .7236, C$ .7776, euro 1.2330, sterling 1.4065, Swiss $1.0490, … European Style: rand 11.82, krone 7.8390, SEK 8.3408, forint 253.35, zloty 3.4140, koruna 20.5668, RUB 57.17, yen 106.27, sing 1.31, HKD 7.8480, INR 64.93, China 6.2795, peso 18.18, BRL 3.3038, Dollar Index 89.89, Oil $65.20, 10yr 2.76%, Silver $16.47, Platinum $936.77, Palladium $952.76, and Gold… $1,336

That’s it for today… Friday night was the Lindbergh High Water Polo alumni game, and I got to watch both my sons score goals for the winning team. I also got to catch up with my buddies, Kevin, Mike, Duane, Rick, Carl and Aaron at my local watering hole on Friday afternoon. Mike was nice enough to buy me a ticket bet on the Cardinals to win the World Series. I used to do that every year that I was sent to Las Vegas in the spring. but since I don’t go there any longer, I need to have those that do go there make my bet for me! Otis Redding takes us to the finish line today with his classic song: Dock of the Bay… And with that, I’m late, so this had better get out soon! I hope you have a Marvelous Monday, and please remember to always Be Good To Yourself!

Chuck Butler
Creator & Editor of:
A Pfennig For Your Thoughts

 

 

) The Daily Pfennig is no longer published by EverBank and it is now published by Aden Research Group.

Chuck Butler recently joined the Aden Research Group, a research center led by writers and market analysts Pamela and Mary Anne Aden. The Aden Research Group publishes three newsletters:
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