Dollar steadies and gold moves higher.

In This Issue.

* Dollar steadies after volatile day.
* Investors reactions to Friday’s events.
* Emerging markets take one on the chin.
* Gold hits a five month high…

And Now, Today’s A Pfennig For Your Thoughts.

Good morning. Chuck let us know he is going to be ‘offline’ for another few days so it will be another ‘group effort’ on the Pfennig this morning. Frank will get things rolling this morning, so take it away Frank:

Saint Louis – It was certainly a chamber of commerce weekend around our little river town in the great flyover. Sunny, warm, and the main blast of humidity has not yet arrived. Lots of work around the yard and house of course as spring opens up the opportunity for flowers to bloom, but also weeds to grow. Sunday morning started out with a good run at a soccer game – I prove once more that I haven’t lost that concrete touch. Argh. Sunday afternoon took us to the ballpark for the first time this year. Unfortunately the Cardinals had a rotten outing which didn’t spoil the weather or the company but leaves them chasing the field already. At least the Blues are in the playoffs and set to face the Minnesota Wild starting Wednesday. Now there’s some action.

The combination of a missile strike and a less than exciting employment release on Friday left the markets spinning once more. Reminds me of Meatloaf – “what’s it gonna be boy?” Once again the markets asked to sleep on it. Over the weekend I had the honor of penning the Sunday Pfennig – you can find it here – . Debt delinquencies are rising and the combination of federal, state, local, corporate and personal debt is now almost 50% held outside the US. Some commentators think this is a bad thing and could lead to a sharply lower US dollar. We’ll wait to see the fallout.

Friday certainly brought some volatility back into the markets with the combination of the Syrian missile strike and the big job report. I spoke about both issues in Friday’s Pfennig, so I won’t go back over the events, but instead will share how investors reacted. The Syrian attack pushed oil prices to a one month high and also propelled gold to a five month high. Yields on the benchmark US Treasury 10 year bond fell on the back of safe haven buying.

The biggest questions for investors seemed to be centered around how to read Friday’s job report. While the headline unemployment rate dropped to 4.5%, the number of new jobs created in March was dramatically lower than economists had predicted. A major snow storm in the Northeast during March was a contributing factor to the big jobs miss. I was focused on the earnings data which came in right on top of economists projections and confirmed that even though we are at or near full employment wages are not yet being forced higher. The headline unemployment rate had some calling for an acceleration of rate hikes, while the big miss in the number of jobs created had others questioning whether the FOMC would be able to hike two more times in 2017. The President of the New York Fed, William Dudley threw his own cat among the pigeons when he said the US central bank might avoid raising rates at the same time it begins to shrink its balance sheet. Chuck has discussed this in past Pfennigs; the shrinking of the Fed’s balance sheet is tantamount to a rate increase, so some are worried that doing both at the same time could have an unexpectedly dramatic impact on the markets. Dudley later clarified his earlier comments, saying there may be only a ‘little pause’ in the central bank’s rate hike plans this year.

The emerging markets were sold off as investors grew more nervous about the strength of the global recovery. Tensions in the Middle East and on the Korean peninsula had investors in a ‘risk off’ mode which weighed on the emerging market currencies. South Africa’s rand had the steepest losses, weakening by over 1% against the dollar. A second downgrade by Fitch pushed South African debt into ‘junk’ status increasing the selling pressure on South Africa’s currency. Worries about the global economy also forced both the Australian and New Zealand dollars to multi-week lows on the risk-off trades.

Gold hit a five month high on Friday, propelled by the combination of the Syrian missile strikes and big payroll miss. The disappointment on payrolls caused investors to reduce their expectations of an acceleration of the pace of interest rate increases. The markets had priced in two additional interest rate increases, but recent data have investors wondering if the US economic recovery will justify two more rate hikes. Automobile sales, Housing sales, and now the jobs report all point to a slowing US economy.

But I think precious metal investors are more focused on the military action in Syria. The precious metals are a traditional ‘safe haven’ during times of global crisis, and the US missile strike has certainly raised geopolitical risks. Russia is a strong supporter of Syria, and the missile strikes could lead to a larger confrontation between Russia, Iran and the US.

The combination of increased geopolitical risks and slower rate hike expectations should help support the price of precious metals in the near term.

Currencies today 4/10/17. American Style: A$ .7490, kiwi .6938, C$ .7479, euro 1.0572, sterling 1.2398, Swiss $.9905 European Style: rand 13.8625, krone 8.6454, SEK 9.0809, forint 293.96, zloty 3.9951, koruna 25.060, RUB 57.1748 yen 111.29, sing 1.4060, HKD 7.77, INR 64.555, China 6.9042, pesos 18.677, BRL 3.1325, Dollar Index 101.19, Oil $52.85, 10-year 2.3715%, Silver $17.85, Platinum $938.49 Palladium $790.00, and Gold $1,249.20.

That is it for today. An absolute beautiful weekend here in St. Louis with sunny skies and temps climbing up into the high 70s. I worked a bit on Saturday morning, issuing our latest Core Commodities MarketSafe CD. I spent the remainder of the weekend doing a bit of spring cleaning in our yard. I’m running a bit late so I’ll go ahead and hit the send button now. I hope everyone has a Marvelous Monday and a great start to your week – and thanks for reading the Pfennig.

Chris Gaffney, CFA
EverBank World Markets