EU Summit Begins Today.

* Oil price bounces higher again!.
* Traders won’t get fooled again!.
* Swedish inflation rises more than expected!.
* Gold has choppy day of trading.

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

Good Day. And a Tub Thumpin’ Thursday to you! It’s one of those mornings when I wish my right eye had a windshield wiper, as my eye keeps filling up with tears. And no I’m not crying for any reason, it’s allergies I guess. It will eventually dry up and I can get back to concentrating on the letter. I’m greeted this morning with a song from the late, great Dan Fogelberg singing his song: Next Time. We lost Dan way too early to cancer. Here’s a sample of Dan’s lyrics.. One too many times I’ve felt forgotten, and one too many nights I’ve slept alone, and every time I watch the fruit turn rotten, I tell myself I’ll try a little harder next time. Truly genius.

Front and Center this morning, we have the price of Oil on the rise again. This move higher began yesterday with the news that U.S. inventories had declined last week by 3.26 Million barrels, and then got another boost overnight when it was reported that Iran was cautiously supporting the agreement by Russia, Saudi Arabia, Venezuela, and Qatar to freeze Oil production at current levels. That leaves the price of Oil with a $31 handle this morning. I wish I could say that the Petrol Currencies are basking in the sunshine from the rally in Oil, but I can’t. I think the Petrol Currencies traders have seen these blips upward in the price of Oil before, and have reacted to them accordingly, only to have egg on their collective faces when Oil’s price slides back down. With that thought, it would explain why the Petrol Currencies are not rallying alongside Oil this morning. Yes, traders are singing. We won’t get fooled again!

The dollar seems to have the conn on most currencies today. The euro is flat Vs the dollar, and only the Swedish krona, Mexican peso, Polish zloty, S. African rand, Singapore dollar, and Chinese renminbi have carved out nice gains VS the dollar this morning. That’s quite a collection of currencies isn’t it? I can tell you that the Mexican peso’s trick today is tied to Mexican Central Bank intervention.. But it has worked so far. But the peso had better watch its back, for Goldman Sachs issued a report saying that the pesos rally will be short-lived. Good to see Lola back at work, eh? Remember, what Lola wants, Lola gets.

The Aussie dollar (A$) is down by about a quarter of a cent this morning, after their latest labor report surprised the markets with the Unemployment Rate ticking higher to 6%.. The Employment Reports from Australia recently, have shown quite an improvement in not only jobs created but wage strength. The Reserve Bank of Australia (RBA) even mentioned this in their last meeting minutes, as something they’ll be watching to see if it can continue. Well, I guess the RBA got their answer, and full time employment dropped -40,000.. The last 3 months had seen employment rise 104,000, so this 40,000 drop takes more than a pound of flesh from the previous month’s total, but it doesn’t wipe out the gains altogether! And I think that’s why the selling in A$’s hasn’t been so aggressive overnight. Lola decided to make a statement about Australia overnight too, and Lola says that the RBA will cut rates between May and August. But didn’t mention anything about March, which was previously thought to be the month the RBA would opt to cut rates. You may recall, dear reader, that I said that I didn’t think the RBA would cut rates in March, so after a couple of days, traders will forget about this rotten labor report, and focus more on interest rate differentials. And that’s a feather in the cap of the A$!

I mentioned above that the euro was flat VS the dollar this morning so far. It’s going to be a big two days for the Eurozone, going into the weekend, as the EU Summit begins today, and ends tomorrow afternoon. You can bet your bottom dollar that the BREXIT (Britain exiting the European Union) is going to be discussed, and could quite possibly come to a final decision tomorrow. The FT apparently got ahold of the “leaked” statement by the British leaders. But ECB member, Juncker says that he believes an accord to keep Britain in the European Union is within reach..

Either way, the EU Summit has two items on their agenda. Britain, and refugees. Britain’s decision that actually isn’t the final decision, until a public referendum in June is held, will dominate the press at the Summit. I think the refugee problem is something the EU would like to sweep under a rug and not air their dirty laundry to the world.

Speaking of the “world”, the Organization for Economic Cooperation and Development, the OECD, has reduced their forecast for global grow in 2016, from 3.3% to 3%, the same level as 2015. The OECD pointed to the slow economies Germany, Brazil and the U.S. for this lowering of their forecast. The OECD’s report went on to say that, “financial stability risks are substantial” and blamed all of this on “high domestic debt”.

Finally, someone out there speaks my language. The language of too much debt is bad for everyone. Unfortunately, I’m probably the only person that will take notice of the OECD report!

In the March Review & Focus, I tackle the growing talk about the end of cash. And right after I sent the R&F off to be reviewed, a news item flashed on the screen that caught my eye, and said, that Larry Summers wanted to end the printing of the $100 bill. Look, folks, don’t be confused by any of this talk, that they think only criminals use $100 bills. It’s all malarkey! First they take away the $100 bill, then the $50, then the $20, and pretty soon, cash is dead, everything is done electronically, and the gov’t will know everything you do with your money. Uh-Oh! Well, hopefully, I won’t be around when all this comes to fruition, but calls to end the printing of the $100 bill is a start for those wanting to end cash. A dear reader sent me a note and asked me if I had missed this Summers comment, and I replied that, ” I was never a fan of Larry Summers, and so I tried to just let it go, but the more I stewed on it. Well, you see what happened!

Alrighty then. Now that I’ve come down from my soapbox, we can get back to the task at hand. I mentioned above that the Chinese renminbi had seen another appreciation in the fixing overnight, marking 3 consecutive days of appreciation for the renminbi. I read a report on the Bloomberg this morning that was interesting, as it quoted the “best overall forecaster of China’s economy according to Bloomberg rankings for the past two years” Song Yu, is that person, and I liked what Song was saying as it was bang on with what I’ve been saying about the Chinese economy all along the past couple of years.

“Even though full-year growth will drop to 6.4% in 2016 as wages, employment and consumption take a hit, I’m not negative about China’s economic prospects and dismiss the dire predictions of a coming collapse.” -Song Yu

The Swedish krona is one of the better performing currencies this morning, as Sweden saw their January consumer inflation rise 0.8%, the biggest move since last September, and better than the 0.5% forecast for the data. Krona traders had better tread the water carefully as to not attract the sharks in the water.. The Swedish Central Bank (Riksbank) Gov. Jansson, has made it clear that he doesn’t want to see the krona rally too quickly, and if he does see that, currency intervention was still possible. So, be calm and rally krona traders, but don’t get wild and crazy about it, or else you’ll attract the intervention sharks!

A currency that has been very stealth-like in rallying is the Canadian dollar/ loonie. A month ago on January 19, 2016, the loonie hit a low of 6859-cents. since then the moves have been slow, but steady, and the loonie trades today with a 73-cent handle.. I think a couple of thing have gone on here. 1. The selling was overdone, 2. The price of Oil , while still stumbling around, has stabilized around $30, and 3. The economic data like yesterday’s rise in Home Sales has looked better recently. Of course, I’ve just given the loonie the Chuck’s kiss of death, for a currency. for when I talk glowingly about a currency, something strange happens. I wish I had the same mojo I had “back in the day” when you could look at a country’s fundamentals, and make an educated decision about the stock of that country, the currency!

I was reading a report someplace, I don’t recall now, but it was talking about how currency strategies lose predictive power. Yes, the game has changed, and old dogs like me can’t be taught to do new tricks, or can they? I think they can! Take for instance, the dollar, which benefitted from forecasts for higher interest rates for two years, has depreciated against almost every major currency in the past month. I knew in my heart of hearts that this interest rate talk fueling dollar strength was nothing but hoo-haw but when the rest of the markets were going to catch up to that thought, and begin to reverse their dollar longs was the question.

I think that in the end, it’s still a young man’s game to deal in short term forecasts for currencies. I prefer to stick with the trends, and long sweeping moves of currencies. And holders of currencies see things in long sweeping moves too, so the two marry up nicely.

Whew! I was really rambling on there wasn’t I? Sorry about that, sometimes I have something on my mind that I want to say, and haven’t a clue as to how to say it, without ticking someone, somewhere, someplace, off.

Gold is down $4 this morning, after flipping and flopping around yesterday in a choppy trading session that saw the shiny metal fall below $1,200 briefly, rise above it, drop back down to $1,200 and then rally to end the day to $1,208. The other metals, Silver, Platinum and Palladium all followed Gold with choppy trading sessions of their own. I’m getting worried about Gold’s rally so far this year, as the shiny metal seems to have petered out here at $1,200. If, Gold Traders want to use $1,200 as the new base, for Gold’s price, that’s fine with me, but they’ve got to get moving pushing the envelope of price strength! The demand for physical Gold and other metals is still very strong… The U.S. Mint sold 123,000 Silver Eagle 1oz coins last month. And I saw an ad on TV promoting American Eagle Silver coins yesterday.

The U.S. Data Cupboard received a pleasant surprise yesterday when Industrial Production rose 0.9% VS 0.4% expected, and Capacity Utilization rose to 77.1% VS 76.4% the previous month! WOW! Those are the first two pieces of real data to print favorably for the U.S. economy in a month of Sundays! But, the good reports were watered down by a fall in Housing Starts, and Building Permits, and a rise in PPI (wholesale inflation ) and then watered down even more by the Fed’s Meeting Minutes.

Oh, yes, the Fed’s Meeting Minutes, I went this far without nary a mention of such minutes, and I wouldn’t spend time on them if they weren’t important for the markets. I said yesterday that I thought the minutes would come out sounding dovish. And while you would have to stretch your rationalization pretty far to come to a conclusion that the minutes were dovish, they also weren’t hawkish in any manner. with comments like: “we are closely monitoring global economic and financial developments and assessing their impact on the outlook.” One could take that as Central Bank parlance as “things have gotten messy and our outlook is being affected” which would be considered a dovish statement. But then “on the other hand” the fed said, that they would wait to see what comes of the U.S. economic slowing before changing their forecast of 100 Basis Points of rate hikes this year.

Keep the markets guessing, that’s their plan I think. A real shame they can’t be more upfront. But if they were, I guess they would be coming away with egg on their faces, because they hiked rates in December when they shouldn’t have.

To recap. The dollar has the conn on most currencies today, with only a handful of currencies carving out gains VS the dollar. One of those is the Swedish krona which saw their consumer inflation rate rise by almost double what was forecast in January. The price of Oil rose $2 yesterday and through the night, as the U.S. reported a drop in inventories/ supply, and Iran is cautiously looking at joining in the Agreement to freeze Oil production at current levels. The Petrol Currencies aren’t receiving any love from this move in Oil’s price, and Chuck thinks it has to do with Traders not getting suckered into believing that this the long awaited rally for Oil. The EU Summit begins today, get ready to hear a lot of saber rattling regarding the BREXIT. And Gold had a choppy day of trading yesterday, closing up $8 but is down $4 this morning.

For What It’s Worth. Japan used to be known as a trading exports juggernaut. But that was before China took that title away from Japan, and before Japan continued to struggle with deflation and a negative growth environment. But, they did always have their Trade and exports to help them. But in recent months, we’ve seen trade numbers fall in Japan, and in January, they were really bad. Here’s the link the whole story on Reuters:

And here is the snippet: “Japan’s annual exports in January fell the most since the global financial crisis as demand weakened in China and other major markets, leaving policy makers battling to revive a fragile economy after a fourth-quarter contraction.

Exports fell 12.9 percent year-on-year in January in their fourth straight month of declines, Ministry of Finance data showed on Thursday, led by a slump in shipments of steel and oil products as Japan and much of the rest of Asia were put to the sword by feeble external demand.

It was the biggest drop since October 2009 when the global financial crisis knocked demand across the world. The volume of shipments fell 9.1 percent year-on-year in January, down for seven months in a row and the worst slide in three years.”

Chuck again.. I would think that this latest report has to have Japanese Officials, including PM Abe very concerned that their programs haven’t worked and they don’t have much else to fall back on.

Currencies today 2/18/16. American Style: A$ .7160, kiwi .6630, C$ .7305, euro 1.1085 (the euro has dropped ½-cent in the past hour while I was writing), Sterling 1.4370, Swiss $1.0047, . European Style: rand 15.3967, krone 8.5820, SEK 8.4840, forint 279.30, zloty 3.9515, koruna 24.3686, RUB 75.44, yen 113.85, sing 1.4040, HKD 7.7795, INR 68.46, China 6.5152, pesos 18.24, BRL 4.0195, Dollar Index 96.98, Oil $31.35, 10-year 1.80%, Silver $15.26, Platinum $940.92, Palladium $511.45, and Gold.. $1,205.70

That’s it for today. Hello sunshine, will old darkness be my friend? Hello Sunshine, to this you can put an end. Ahhh, I was singing to the sunshine this morning, and you caught me singing out loud! HA! I has a special treat the other day, trading emails with a good friend, and former colleague, Ann Hopkins. And then I received an email yesterday from my oldest friend. We met in kindergarten. He’s gone on to become a very successful traffic lawyer. So, it was old friend week! And, after hours of looking through archived files, I found the original PDF of the white paper that I wrote titled: The Decline of the Dollar, that was written in 2003, and was the follow-up of the 2002 white paper titled: The Year of the Euro. the interesting thing in the Decline of the dollar, 2003, was my pointing out that there was a housing bubble. 2003, let me remind you! Alrighty then, The Moody Blues take us to the finish line today with their song: The Voice. and with that, I hope you have a Tub Thumpin’ Thursday!

Chuck Butler
Managing Director
EverBank Global Markets
Editor of A Pfennig For Your Thoughts