ECB stays put

* Jobless claims at historic lows
* No change for ECB
* Odds of Brexit decrease
* More NIRP in Japan

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

Good Day. And welcome to Friday morning. As Chuck mentioned yesterday, he’s on a plane making his way back north to St. Louis so it will be a collaborative effort this morning to bring you the Pfennig. It was a fairly wild day that had us leaning in one direction during the early trading session and then changed abruptly once the headlines from the ECB meeting started hitting the airwaves. Let’s get things started with commentary from Frank and then see what had the markets buzzing yesterday.

“Somewhere way down in those photo archives I can’t quite find I have a picture of a high school classmate, Charlie Clark I think, standing at the corner of Clayton and Price roads. It was 1972 and I recall he was dressed in a long coat and a gas mask. It was the third Earth Day, April 22 now each year, and as was the custom back then there was a march to emphasize and commemorate or emphasize the day. Recall that in the mid-1960’s many articles and editorials would state that water or air could easily accommodate whatever was put into it and there was no need to stop the practices. Then in 1969 the Cuyahoga River burned for a bit and right or wrong helped kick off the modern ecological movement.

At the time I was in an internship at Washington University under Barry Commoner. His 1971 book held four common sense statements he framed as “laws”. “1 – Everything is connected to everything else; 2 – Everything must go somewhere; 3 – Nature knows best;” and the most widely quoted “4 – There is no such thing as a free lunch.” While these are essentially restatements of the laws of motion and thermodynamics they probably had to be said at the time. His solution was a socialist response which couldn’t be further from my take. But here in the US, in sharp contrast to modern day China, the air is pretty good and we can swim in the water if we choose without risking health problems immediately.

Now before you write IN ALL CAPS and say these regulations have gotten out of hand, know that in these pages we have often said that statutes, regulations, and actions often start with a good purpose and then blossom into extraordinary documents that defy logic. So too we wonder about the Federal Reserve and it’s various policies of: stimulus, QE, ZIRP and NIRP. It’s clear that they continue to buy in to the ‘fatal conceit” and no matter what short term actions may be taken I suspect they’ll keep the Monetary Base figures extremely high over the next several years, and possibly indefinitely. On the good side however investors in many currencies continue to be rewarded for their diversification this year – sure hope that continues.”

Thanks Frank. On that note, I’ll start by running through the economic data schedule since we have the April Fed meeting coming to a head on Wednesday where rates are expected to remain on hold. As is the case with most of these types of events, the markets are much more interested in the sound bites following the meeting instead of the actual result. Next week is shaping up to be a fairly busy one for US data so there should be plenty of peripheral noise to keep the news tickers working overtime. Aside from the FOMC meeting, we’ll also have some housing data, durable goods, personal income/spending, and much more.

Getting back to this week, we had some mixed data yesterday with the weekly jobs numbers coming in better than expected. In fact, and I had to do a double take on the following headline, initial jobless claims fell to the lowest level since 1973. The 247k claims for last week was the lowest figure since Nov 24, 1973 and has held below 300k for 59 consecutive weeks. Unless I’m living in a bubble and sporting some serious Blu-Blockers, I’m having a tough time buying that fact that we are in the midst of the most robust labor market over the past 40 years. Leading indicators came in lower than expected as a result of the fall in building permits, but it did turn positive by posting a 0.2% gain. Other than that, we had some third tier data that didn’t give us much direction. Today, we only have one report as we’ll see the reading of the April Markit PMI report, which is a gauge of business conditions.

As far as the currency market is concerned, the ECB meeting had a heavy hand in the volatile moves yesterday. As was widely expected, there was no change in policy so the markets were left for interpretation and the initial knee jerk reactions. Right when the announcement was made, the euro gapped higher since there were not any additional stimulus measures put in place and central bank president Draghi sounded upbeat by expressing some optimism around economic stabilization. As more information became available, concern about the possibility of more stimulus at some point in the future re-entered the conversation and focus shifted toward the outstanding ‘do whatever it takes’ pledge.

We’ve seen similar type of market action following the past couple ECB meetings, so this isn’t a exactly a new development. Now that the ECB meeting is in the rearview mirror, the markets are gearing up for the Fed meeting next week. After the dust settled yesterday, most currencies finished in negative territory with the commodity currencies taking the brunt of a rising dollar. We saw a huge swing in metals as well, especially in silver as it was up at one point nearly 5%, but it was able to finish the day up a couple of cents. Speaking of metals, Chuck sent me thoughts to share:

“How many Pfennig Readers know Jeff Clark? I’ve quoted Jeff before, but for all of you unaware of who he is. Jeff Clark is a Gold analyst, and newsletter writer on the subject of Gold. He’s been around for quite a few years, and most times what he says I listen to. Well, Jeff recently wrote that he believes that Gold is going to see a pullback before really taking off, and that he would use this pullback as an opportunity to buy at levels, he doesn’t believe will be seen again for a long time. Now, Jeff didn’t just say this out of the blue, he’s done his research, and this scenario is what he sees. So, take that with as many grains of salt as you wish!”

Thanks Chuck and look forward to seeing you in the office next week. As I came in this morning, most of the currencies are trading in tight ranges. The Swedish krona has the top spot so far this morning since the ECB’s decision to keep policy unchanged has taken the heat off of the Swedish central bank to up the ante on stimulus measures. The British pound is following right behind with nearly a 0.50% gain as the odds of the so called Brexit have dropped to 20% according to a poll released by Politics Referendum Forecast. Other than that, the only other currency with what would be considered a material move is the Japanese yen. It’s currently sitting on a 1% loss for the day after reports are picking up that the Bank of Japan may decide to move rates into negative territory on some loans. The BOJ meets next week on Thursday so we’ll see if there is any truth to the rumors.

That does it for me, so until next time, have a great day!

Currencies today 4/22/16. American Style: A$ .7740, kiwi .6887, C$ .7860, euro 1.1266, sterling 1.4380, Swiss $1.0246, .. European Style: rand 14.3684, krone 8.1953, SEK 8.1053, forint 275.25, zloty 3.8620, koruna 23.982, RUB 65.9384, yen 110.66, sing 1.3492, HKD 7.7567, INR 66.51, China 6.4898, peso 17.4645, BRL 3.5309, Dollar Index 94.82, Oil $43.34, 10-year 1.86%, Silver $17.16, Platinum $1,025.50, Palladium $603.36, and Gold. $1,245.50

Mike Meyer
Vice President
EverBank World Markets