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Economic data begins to ramp up.

* NYC tour.
* Bombing in Russia.
* South African downgrade.
* Meeting with Lockhart …

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

Good morning. I’m in New York City with Frank who led me on a 4.5 mile walking tour of Manhattan yesterday. My feet are feeling it a bit this morning as I didn’t exactly have my hiking shoes on, but it was definitely a great way to get to know the city; but I’ll let Frank tell you more about our trek:

New York City – Chris Gaffney and I arrived in NYC late Monday morning. The flight took the downwind leg for LGA runway 22 just west of Manhattan which afforded my right-side window seat a great view from Battery Park all the way up the Island to Yonkers. After grinding through cross town traffic in our Uber from the airport to our hotel on 46th we walked to Eataly for lunch at 23rd, then on down to Battery Park where our meetings were being held. For me it’s a lot better way to fall in to a city – riding the cab or car or subway allows me to put my head down and ignore what is going on around me. On foot, at worst, there are obstacles to avoid, and at best a feel for the surroundings. Of course it didn’t hurt that it was a beautiful day for a walk. Nice to have it all be great after my arranged Saint Louis County Cab to the airport didn’t show up; the agent on the line when I called said something to the effect that no-one picked up the ride, so sorry – then hung up. It is interesting what we in the first world expect, no insist will happen. Things are supposed to run on time and be in great shape. Roads should not have potholes and the electricity should not go out. Taxis should appear when arranged. Since we travel a lot we understand that this is not only a novel idea in many places in the world, but it also takes a huge amount of work to accomplish. The Mid-Town to Downtown walk through NYC reinforces this image.

While Washington frets about supreme court approvals the markets wait like a sailing ship for the wind to show some direction. Will the next set of proposals pass congress? What will the commission on the trade deficit find and what recommendations will be made? Which ones, if any will result in change? Is the stimulus package being written and what companies will benefit when it becomes law? For now investors appear becalmed – flitting one way or the other on a short burst of air then drifting again with hope for the front that will push them out of the harbor. Hurricane season starts soon – best to be under way. Ten-year Treasury rates as an example have drifted back to 2.33% (as of 5:00pm eastern) showing a conviction for low inflation and little growth. The euro holds a 1.06xx handle as I write – will it go higher as the fog lifts or move towards parity? Let’s let the Pfennig team chime in and tell us how to set the sails.

Dane Moody, our newest contributor to the Daily Pfennig sent me the following note showing what was moving the markets yesterday:

News of the bombing in St. Petersburg, Russia dominated the morning headlines. More than 10 people were killed and dozens were injured as bombs went off on a train in St. Petersburg on the same day that President Putin was visiting the city. However, the markets bounced back from the news quickly and finished the day with a gain, trading at 56.10. It is somewhat surprising to note that neither this incident of suspected terrorism nor a dip in the price of oil during the trading day could take the wind out of the ruble’s sails.

The biggest currency move on the day came from the South African rand, which dropped by more than 2% on news that S&P cut South Africa’s foreign currency rating to junk. The move comes on the heels of a big cabinet shake-up by President Zuma, who fired his Finance Minister last week. S&P maintained their negative outlook for the rand. South Africa’s unemployment and slow growth continue to create challenges for the economy, and S&P understandably have their concerns about the future. Later this week, we’ll find out if Moody’s shares the same pessimism.

Apart from that, the markets stayed in tight ranges, and the currency and precious metals moves were incremental at most. The British pound was off by 0.5% on weaker than expected manufacturing data, and the Japanese yen climbed by 0.45%. The precious metals were flat to up on the day, with platinum leading the charge at a 1% gain.

Thanks to Dane for that excellent wrap up of yesterday’s markets.

Another currency which was in the news yesterday was the Icelandic Krona. The state’s finance minister floated the idea of pegging the Icelandic currency to the euro – something they did back in 2008 in order to try and reduce the volatility of the currency. It didn’t work then and is still not a good idea (think of the Swiss Franc and what happened to their central bank reserves while trying to keep up their currency peg).

This morning the markets are relatively calm as we head into Tuesday’s trading. We are waiting on a plethora of data releases this morning here in the US, including the trade balance, Factory orders, and Durable Goods orders. We will also have a rate decision by the RBA and the ECB President Draghi will speak in Frankfurt. Plenty to move the markets, but right now it looks like investors are on hold and waiting for some direction.

I had the pleasure of running into former Atlanta Fed President Lockhart yesterday at the investment conference. I happened to unknowingly steal his seat in the hotel lobby, and he struck up a conversation when he came back to retrieve his papers. He gave me a personalized version of the address he gave everyone at the opening ceremonies last night. He and his team spent a lot of time digging into the ‘labor productivity question’ and while he is generally optimistic about the direction of the US economy; he is somewhat worried about the headwinds which demographic shifts will present. An aging population will continue to pull down productivity, and he brought up Japan as an example of what we should be worried about. While our economy is not turning Japanese (yet) he believes we should be looking at what has happened in the ‘lost decades’ over in Japan and use that to try and avoid a similar fate.

He was too smart to try and predict where the dollar is headed, but feels all of the talk of a stronger dollar due to higher rates here in the US is probably overdone – the risk is the dollar will weaken in the medium term. Finally he thinks the US is in a low growth, low inflation mode for the next several years and says the 4% GDP noise which some in the administration have been pushing is overdone.

Currencies today 4/4/17. American Style: A$ .7548, kiwi .6978, C$ .7438, euro 1.0648, sterling 1.2433, Swiss $.9980 European Style: rand 13.7603, krone 8.6162, SEK 9.0203, forint 290.37, zloty 3.9971, koruna 25.39, RUB 56.45 yen 110.32, sing 1.3989, HKD 7.7702, INR 64.96, China 6.8993, pesos 18.9020, BRL 3.1351, Dollar Index 100.64, Oil $50.50, 10-year 2.32%, Silver $18.37, Platinum $960.06, Palladium $808.10, and Gold $1,259.65.

That is it for today. Another late night watching the NCAA championship game – congrats to the tar heels for winning what I thought was a pretty ugly game. And thanks to Rob F. for arranging for a great dinner, it was great catching up to an old friend and the view from the restaurant was amazing. We sat on a patio several stories above the World Trade Center Memorial Pools and enjoyed a nice evening. Now I’ve got to get off to catch up with Frank and head over to the conference. I hope you all have a terrific Tuesday and thanks for reading the Pfennig.

Chris Gaffney, CFA
EverBank World Markets

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