Drifting Away.

* Currencies, metals drift around.
* Chinese reserves fall below $3 Trillion..
* RBI to surprise markets today?.
* Oil slips downward again!

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

Good Day.And a Wonderful Wednesday to you! Right up front today, I’ll tell you that the scans I had last week looked good. No new cancer, and the tumor in my mouth is still shrinking, slowly, but shrinking, and that’s with me not having any cancer treatments for 4 months now! The doctor tells me that the treatment can stay active in my body for up to a year, which explains why my colitis is still not healed. So, now we can concentrate on my back pain without worries that it’s cancer related. I will meet with a pain management doctor in the next couple of days, of which I’ll tell him it’s all weight related, which is all steroid related, which is all colitis related.. Heal the colitis and the steroids go away, and the weight goes away, and so does the pain, so the healing of the colon is the root of the problem.

Well, remember what I told you on Monday, when I said that with little data this week, I expected the currencies and metals to drift around? Well, that’s what happened yesterday, and all through the overnight sessions.. To illustrate this, yesterday at this time, the Dollar Index was 100.65. this morning the Dollar Index is 100.61.. I’d call that drifting.. Reminds me of a song.. Drift Away by Dobie Gray.. Some currencies have drifted higher, and some have drifted lower, but the moves are small, and so, there’s nothing to talk about today, goodbye.

Gotcha! Ahhh, grasshoppers you knew I wouldn’t cut today’s letter THAT short didn’t you? So, it’s another void day for data, but we will see 3 Central Banks around the world meet to discuss monetary policy. the Reserve Bank of India (RBI), The Reserve Bank of New Zealand (RBNZ), and the Bank of Thailand (BOT) (not that we follow Thailand, but they’re meeting so I mentioned it!) Of the two that we follow, the RBI and RBNZ I really don’t expect much from the RBNZ, but then the RBI has a hankering for surprises, so there certainly is a chance we could see a surprise move in rates here, and so my spider sense is tingling here, folks.. we could see a 25 Basis Points rate cut today..

The BIG NEWS yesterday came in the form of Chinese reserves. In the December Review & Focus (www.everbank.com/reviewfocus) I spent a lot of time talking about the reduction going on in Chinese reserves. Well, yesterday, these reserves showed that they had fallen below $3 Trillion, at $2.9982 Trillion. The reduction in the reserves have had two goals. 1. Is to defend the renminbi (and the U.S. says China manipulates the currency weaker? , when they’ve spent Hundreds of Billions defending it?) 2. The reduction of U.S. Treasuries. And, for all you Chicken Littles out there, screaming that the sky is falling because China’s reserves have fallen below $3 Trillion, STOP, and think about what you’re saying. In my opinion, you should be thanking your lucky stars that China had over $4 Trillion in reserves at one point, for its times like this that you accumulate reserves isn’t it?

The Big mover in the past 24 hours is the price of Oil.. The price of Oil has slipped downward again, down to a $51 handle on the news that the latest supply report showed that Crude supplies saw a HUGE jump last week, in fact it was the second largest 1-week jump in supplies on record.. And that knocked the stuffing out of Oil’s price, and also knocked the Petrol Currencies with a small downward move.

In related news. the demand for refined crude (gas) is weakening for the first time in 5 years! I’m told that this weakening gasoline demand comes right when U.S. Retailers were reporting their worst earnings since the shale boom in 2011! So, what does weaker demand for gasoline tell you? Well, it tells me that the disposable income that consumers have is being stretched, and gasoline is a given for driving to work, school, etc. but “recreational trips” have to be cut. Let’s jot this down in our journals, that Chuck thinks this is a warning shot fired across the bow of the economy..

The British pound sterling/ pound, is perky this morning, as a Bank of England (BOE) voting member stated that she was “becoming uncomfortable with the BOE’s policy stance, and with the strength in the economy, and rising inflation, she may decide to vote for a rate hike at the next meeting.” Hmmm.. So, I would have questioned her to show me where the economy is strong. And with no data that looks like strong data, she would have had to back off her statement, but journalists just don’t do that kind of thing any longer do they? Oh well, her comments goosed the pound higher this morning.

The euro is trading in yesterday’s clothes this morning, and that’s a good thing I would think, given all the saber rattling going on between the U.S. and Germany in the past week. Yesterday it was Germany’s turn to point a finger at who’s to blame for the euro’s weakness, and Jens Weidmann, head of Germany’s Central Bank, the Bundesbank, was doing the pointing. Let’s listen in to what Mr. Weidmann had to say about all of this.. “Jens Weidmann said comments by a top trade adviser of U.S. President Donald Trump that Germany was exploiting the United States and its European partners with an overly weak euro were “more than absurd”.

“The thesis that foreign currency manipulations are to blame for the current strong U.S. dollar is not borne out by facts. The most recent rise in the dollar is likely to be home-made, triggered by the political announcements of the new government.”

These comments were found on Reuters and can be read here: http://www.reuters.com/article/us-usa-trump-bundesbank-idUSKBN15M21Y

I think I made the most cogent argument about this whole thing the other day, when I pointed out that the European Central Bank (ECB), not Germany, was responsible for the value of the euro, so all the pointing at Germany last week by the U.S. is wrong.

In the end though, I really think that it the saber rattling is just a theatrical play by the two countries.. I see the U.S. wanting to get the U.S. dollar cheaper, they’ll never get the traction in the Trade Deficit reduction the U.S. claims will take place, without a cheaper dollar.. So, they call Germany on the phone and say, “is it alright if we work out a little play where I complain about the weakness in the euro, when what I really want is a cheaper dollar?” Of course that’s just me thinking this through, and I could be wrong of course!

I see that the IMF is shouting from the rooftops that Greece’s debt has risen to 149% of their GDP.. That’s not a good thing folks. But let’s see what we have here. So, why isn’t the IMF all over Japan for their more than 2 times their GDP in Debt? Yes, 229% is the Japanese Debt level.. I had a dear reader ask me about Japan last week, no wait! I already told you this last week, well, anyway, Debt is major problem in Japan..

In the January Review & Focus, I talked about Japan and their stimulus measures that they’ve implemented over the years.. . Japan has implemented 26 stimulus measures one of each year that they’ve been attempting to stimulate the economy.. So, what has held back the Japanese economy after all this stimulus? Well, it could very well be the fact that the Japanese Gov’t never delivers the amount of stimulus that they announce they will deliver when the stimulus is announced. No, wait a minute here Chuck, are you telling me that A government fails to deliver promises? Nah, I would never tell you that! HAHAHAHA!

But yen continues to hold onto Safe Haven Status.. And it’s one of the great mysteries in life, and boggles my mind daily, as to how Japan maintains this Safe Haven Status. With their debt, bad demographics, and inability to implement structural changes, I would think yen would be the last currency an investor flocked to in times of risk.. Oh well, it is what it is, and I can’t change it, so there!

Oh, and back to Greece. Well, things are getting back to normal in the Eurozone, Greece 2-year notes have a yield of 10%.. Now that’s more like it! Remember pre-PIIGS, when Greece could borrow in the bond market at the same rates as Germany? That was preposterous! And while it has taken some time to correct itself, the Greek borrowing rates are back to where they should have been all along!

I wonder if RBNZ Gov. Wheeler, who announced a couple of days ago that he would not seek to be reinstated when his term was up in September, will use today’s monetary Policy statement (MPS) as an opportunity to throw kiwi under the bus again? He only has a handful of meetings left to put his mark on kiwi. So, I would be cautious with kiwi today and whenever the RBNZ has a meeting this year. However, those that love to buy on the dips, would look at these times when kiwi dips on Wheeler comments as opportunities to buy at cheaper levels..

The U.S. Treasury 10-year’s yield has fallen, slowly, but fallen to 2.38% again.. Hmmm.. Is this funny business going on? Or is a true attempt by the bond traders to send a message to the Fed that the economy isn’t ready for a rate hike? Come on, Inquiring minds need to know! I won’t influence your thoughts here, and I’ll let you decide which it is, but it’s one of these..

Gold couldn’t follow Monday’s nice gain of more than $15 on Tuesday, and ended up dropping $1.80, so it too drifted throughout the day. Gold closed on Tuesday at $1,233.40, and is trading on top of yesterday’s close in the early morning trading today. My friend, Dave Gonigam over at the 5 Minute Forecast (www.agorafinancial.com) had some great info on Gold in yesterday’s letter, so I’ll let Greg Guenther take it from here, as he was the writer for the piece in the “5”.

“Gold’s advance for the first six weeks of 2017 has perfectly mirrored the action we witnessed during the first six weeks of 2016.

Gold has posted gains of 6% through the first week of February for the second year in a row.

In both cases, gold bounced off a late-December bottom. And in both cases, the gold rally dipped in late January – only to rocket to new highs at the start of February.

“That’s where the real action begins”.

The U.S. Data Cupboard is empty again today with nothing, nada, zilch, zero a big fat goose egg for today.. Yesterday, we did see the Consumer Credit (read debt) figure for December, which I had thought and told you it could be a blowout number, but instead didn’t come close to November’s $25 Billion, printing at $14.2 Billion.. However Credit card debt remained high at $1 Billion in the month.. Something just doesn’t seem right with this print.. November was more than $25 Billion and December, the month of gift giving drops to $14.2 Billion? I’m not buying this, and would think that next month they’ll attempt to fly an upward revision under the radar.

Oh, and the Trade Deficit was $44.3 Billion, which was narrower for December than November which was $45.7 Billion. Still this number is too large folks..

To recap. The currencies and metals drifted yesterday, and the 10-year Treasury yield dropped to 2.38% (what’s that telling us?) The price of Oil slipped downward to a $51 handle, on increased supply numbers. Chuck thinks the RBI could spring a surprise rate cut at their meeting today, while he thinks that the RBNZ meeting will be a dud, unless Wheeler uses this meeting to throw kiwi under a bus again. Chinese reserves fell below $3 Trillion in their most recent print. The Chicken Littles are out in force, but Chuck asks them to calm down.. And Gold couldn’t add to Monday’s nice gain of $15.80, but instead lost $1.80 on the day.

For what It’s Worth. Well, I would have to think that the markets are gearing up for a rate hike from the Fed at their March meeting. But then we get these mixed messages, like the one we got yesterday from Fed member Neil Kashkari. I found this on Bloomberg, and you can read it all here: https://www.bloomberg.com/news/articles/2017-02-07/kashkari-says-economy-still-needs-low-rates-as-inflation-lags

Or here’s your snippet: “Federal Reserve Bank of Minneapolis President Neel Kashkari justified his vote last week to leave interest rates unchanged by saying inflation is in check and the U.S. job market seems to have more room to improve.

“We are still coming up somewhat short on our inflation mandate, and we may not have yet reached maximum employment,” Kashkari said Tuesday in an essay posted on the bank’s website to explain his decision. “That suggests that somewhat accommodative monetary policy would still be appropriate to close those gaps.”

Kashkari, who took office at the beginning of 2016 and votes this year on the U.S. central bank’s rate-setting Federal Open Market Committee, took the unusual step of publishing an essay “to enhance transparency into my decision-making regarding monetary policy without adding to the cacophony.”

Chuck again.. . Well, it will be interesting to see what happens next month won’t it? I suspect that if Janet Yellen, and Stanley Fischer think rates should go higher, then that message will be disseminated to the Fed members in time for the vote.

Currencies today 2/8/17. American Style: A$ .7633, kiwi .73, C$ .7596, euro 1.0645, sterling 1.25, Swiss $1.001, . European Style: rand 13.4705, krone 8.3385, SEK 8795, forint 290.48, zloty 4.0575, koruna 25.3782, RUB 59.15, yen 112.27, sing 1.4180, HKD 7.7587, INR 67.24, China 6.8771, peso 20.63, BRL 3.1190, Dollar Index 100.61, Oil $51.67, 10-year 2.38%, Silver $17.77, Platinum $1,008, Palladium $767, Gold $1,234.40, and SGE Gold $1,240.41

That’s it for today.. I guess the change of head coach was what the Blues needed, as they’ve gotten two straight shutouts since the new coach took over, as they won last night 6-0! WOW! I still think that players should look in the mirror, and make the decision to play better on their own, they don’t need a coach for that! My friend, Dennis Miller, sent me a link to a baseball report that has the Cardinals playing 10 games under .500 this coming year! YIKES! A losing record? Say it ain’t so, Joe! Well, I’m from Missouri, so they’re going to have to show me that they are a losing team, because from the roster, I don’t see it! Less than a week now until Pitchers and Catcher report.. I’m beginning to get lathered up. I absolutely LOVE spring training! All our condo-friends were out on the deck when I got home from the doctor’s office last night, I’m sure glad I had good news to share with them, otherwise I would have been the bummer of their little “Happy Hour” party.. Matthew Sweet takes us to the finish line today with his song: Girlfriend.. Chuck, Kathy, Chris & Tina Gaffney, saw Matthew Sweet many years ago downtown St. Louis.. Well, time to find out if this is going to go out as usual today, so please go out and make this Wonderful Wednesday, and Be Good To Yourself!

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