Fear, Calm, Fear, Calm, How Long Can This Go On?

* Finally a positive fixing in renminbi!
* German Factory Orders soar!
* But German Industrial Production drops!
* Equity guys say “buy Gold” What gives with that?

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

Good day. And a Happy Friday to one and all! REM greets me this morning with their song: It’s The End of The World. I remember being introduced to the music of REM from our old Mark Twain colleague, Janet Young, and at first thinking that they were no more than an upgraded garage band, but as time went on, I came to appreciate what they did, the music they made, and even saw them in concert.. So, this was a case of first impressions being wrong!

Well, finally, after 8 straight trading days, the Chinese renminbi saw a positive fixing rate by the Peoples Bank of China (PBOC). The positive fixing was small, but positive, and has calmed the markets. So, one day fear, then calm, then fear, then calm. this pattern can’t continue, it would drive me to drink! HA!… So, why after 8 straight weaker fixings where the renminbi lost 1.1%, did the PBOC decide to wrap a tourniquet around the bleeding? Well, it could be a couple different factors, but in the end, I think it was simply a decision that was based on China not wanting to be the cause of more market turmoil. Did you see the U.S. stock market lost 392 points yesterday? UGH! So, a calmer overnight market is what we’ve seen and U.S. stock futures are looking like calm will carry over to the U.S. market too.

On top of all that, it’s also the first Jobs Jamboree of the new year! Well, longtime readers know all too well that I’ve given up on the BLS surveys that make up the Jobs reports that the markets follow. The ADP report for December showed that 257,000 jobs were created, and that’s good enough for me! Unfortunately, though, the markets are still tied to the BLS surveys, like they are to “safe haven currencies”. For those of you keeping score at home, the expectations for the BLS report is 200,000 jobs created in December. But I’m more interested in the Avg. Hourly Earnings, the Avg. Hours worked, and the Labor Participation report.

My good friend, and the retirement guru, Dennis Miller, sent me this very funny piece that’s a conversation (made up of course) with Abbott and Costello, in the “who’s on first” form. it’s hilarious, but I can’t print it here. But here are a couple lines:

COSTELLO: I want to talk about the unemployment rate in America .
ABBOTT: Good Subject. Terrible Times. It’s 5.6%.
COSTELLO: That many people are out of work?
ABBOTT: No, that’s 23%.
COSTELLO: You just said 5.6%.
ABBOTT: 5.6% Unemployed.
COSTELLO: Right 5.6% out of work.
ABBOTT: No, that’s 23%.

And it goes on, to make you laugh, but then you say to yourself, what am I laughing about? 23% unemployment is not a laughing matter!

Well, the dollar is mixed this morning, but for the most part it has the conn on the currencies. The euro rallied strongly yesterday and through the first part of the overnight, after it was reported that Germany’s November Factory Orders rose 1.5% over the month, and the previous month’s number was revised upward to 1.7%… the forecast for this data was to rise 0.1%… So the actual result blew that forecast out of the water, eh? The euro took that data and ran up to 1.0930, but then it backed off in the early morning trading to 1.0870, when it was announced that German November Industrial Production had dropped! UGH! One up, one down for Germany, as it seem that they too have an uneven recovery going on.

The problem with uneven recoveries, is it doesn’t take much to break the pattern, and send the economy hurtling in one direction, usually recessionville, but they have broken out to the upside on occasion too.

The price of Oil stopped sliding on the slippery slope yesterday and overnight, but it’s still very weak, and not helping the Petrol Currencies, although most of them this morning are looking a little perky given the slide had come to an end, for now, that is! The Russian ruble finally is seeing some love this morning, as not only did it help that China finally had a positive fixing for the renminbi, but the price of Oil stopped its skid.

The Brazilian real, Russian ruble, Norwegian krone, Canadian dollar and Mexican peso are all stronger VS the dollar this morning on the Oil price news. The pound sterling from Britain is flat at this point, so at least it’s not down! I told you a couple of weeks ago, that I was reading so many research papers on Oil, and how ½ of them had the price of Oil falling to $20, while the other have had the price of Oil rebounding above $50. And I said, then, that to rebound to $50 Oil production around the world would have to see big cuts. The goings on in Saudi Arabia right now bring to mind how quickly production could get interrupted.

Yesterday, I carried on about the idea that Denmark would hike rates, and said it was “crazy talk”, and then guess what happened? Denmark narrowed their negative rates, which is like a rate hike! I guess it wasn’t so crazy, eh? Those wild and crazy Danes! Narrowing their negative rates, what a wild and crazy move! HA! I’m going to get on my soapbox now. Ahem, is the microphone on? Testing, testing. OK, thank you for being here today. I want to address this penchant for Central Banks to implement negative rates. And will it come to the U.S.? Well, first, maybe it’s the conspiracy blood in me that makes me think this way, but are these Central Banks that have implemented negative rates the “test markets” to see how depositors react to negative rates? I do believe they are, and that it would be a way to control currencies in a country. So, if we see the U.S. talking about negative rates in the future, it won’t be good folks. it won’t be good at all!

OK. That’s enough of that talk! It IS A FRIDAY, Chuck! And the sun is supposed to come out today, so brighten up your talk and mood now! Yes, sir! I gave you a whole rundown on the Japanese yen yesterday, and today it’s as if yen traders read my Pfennig yesterday, and gave themselves the V-8 head slap and decided to take their yen buys off the table and put sell orders in instead! Yen was sold in the overnight trading, but it was probably more of a case of calm being returned to the markets, and therefore the safe haven trades were taken off the books.. But it’s fun thinking that the yen traders read the Pfennig and saw the error of their ways!

The Antipodean currencies, A$’s and kiwi, have taken shots to the midsection this week, with the renminbi weakness, but with the positive fixing by the PBOC last night, one would expect these two to rebound. But both are stuck in the mud right now. The A$ is flat on the day, and kiwi is down more than 1/4-cent. I was doing some writing about New Zealand and kiwi yesterday, and what I found was that recent data in New Zealand has an upbeat feel to it, and should keep the rate cuts at bay. So this selling today has me lost. for it just doesn’t make any sense.

And Gold finally gives back some of its first 4-trading days gains this year. I was talking to the insurance person at the doctor’s office the other day, and she asked what I did for a living, and I said, ” I’m a financial newsletter writer”, she immediately, started freaking out about the stock market, and all I said was, “trees don’t grow to the moon, right? And this stock market has rallied for nearly 7 years.” She stopped talking then. the reason I mention this, is Gold’s price that rose to $1,900 a few years ago, at that point, Gold had risen from $200 to $1,900, in about 13 years. Could Gold’s price grow to the moon? Well, we all know it couldn’t, and didn’t! Simply apply that same thing to the first week of trading in Gold. And then you won’t be so upset with the giving back some of its gains this week in the morning trading.

I do have an interesting piece here on Gold. Check this out! There I was reading Ed Steer’s letter like I do almost every day that he prints it, and I saw this headline title for an article that said, “UBS: Give up on stocks this year and buy Gold”. Well, you know that had to pique my interest! So I read on.. to find that two equity guys at UBS wrote a 39-page equity trading commentary for 2016, and basically told their clients they should plough into Gold. WOW! Hey! Usually when you talk to an equity guy, he has no use whatsoever for Gold, thinks it’s a barbaric relic, and so on. So, I’ve got to give these two guys credit. If you want to read the whole article you can find it here: http://www.businessinsider.com/ubs-technical-analysis-buy-gold-not-equities-2016-1?r=UK&IR=T

The U.S. Data Cupboard will be dominated by the Jobs data today. But we will also see November Consumer Credit (read debt) which will probably show Consumer Credit rising to $18 Billion in the month. YIKES! You know I used to make a guess, and educated, and experience backed guess, at the BLS jobs numbers, but I gave up on that, as I could never make heads or tails of the BLS hedonic adjustments to the numbers. But for old time’s same I’ll take a stab at this month’s report to start the year, and say that the December jobs created will be north of 200,000. better than forecast. You don’t hear me say that often do you? But I’ve figured out that you have to account for the BLS’s adjustments. So, I would say that the # would be disappointing, but then when you add in the potential BLS adjustments, you get a higher number! But that’s it! I’m not playing this game any longer! And Instead keep to what I understand, the Avg. Hourly Earnings, Avg. Hours Worked, and the Labor Participation Rate.

Did you see where Macy’s announced that they are going to cut 3,000 jobs and close 40 stores in the coming months? Yes, the department store pointed to a challenging holiday season where they saw sales fall 4.7% VS the previous year. I also heard that Monsanto was cutting a number of jobs. are these just the tips of the iceberg? I think so, folks.

To recap. China finally places a positive fixing on the renminbi after 8 straight days of weakness that brought the renminbi down 1.1% VS the dollar. Fear, Calm, Fear, Calm is the pattern that China has brought to the markets this week, and I’m ready for that to end! German Factory Orders soared, and the euro rallied, but then Industrial Production declined, and the euro gave back its gains and more. The price of Oil got off the slippery slope for today, and that has the petrol currencies looking perky this morning. And equity guys are touting Gold for 2016. Things do change!

For What It’s Worth. Well, this is not really important today to read, but it is interesting to tie this stuff together. I found this on Ed Steer’s letter, and he pulled it from Reuters, where it can be found here: http://www.reuters.com/article/us-usa-precious-jewelry-idUSKBN0UL22Z20160107

And here are the snippets:
“U.S. imports of gold jewelry rose to a seven-year high in October while platinum jewelry imports surged by more than 60 percent after precious metal prices fell to multiyear lows, Thomson Reuters GFMS calculations showed.

“The United States continued to import large volumes of gold jewelry in October,” Erica Rannestad, senior analyst of precious metals demand at GFMS, said in an email late on Wednesday.

“Gold prices averaged 25 percent lower that month than a year earlier, buoying demand for jewelry made with gold amid a strong United States dollar.”

U.S. imports of gold jewelry reached 7,082 kg (227,691 oz) in October, up 9 percent from a year earlier and the highest level since November 2008. For the first 10 months of 2015, imports were up 13 percent from year-ago levels, Rannestad said.”

Chuck again. Inquiring Minds need to know, how physical Gold is in demand all over the world, even in the U.S. but still the price of Gold dropped in 2015. How can that be?

Currencies today 1/8/16.American Style: A$.7020, kiwi .6610, C$ .7095, euro 1.0865, sterling 1.4585, Swiss $1.00, . European Style: rand 15.9735, krone 8.9025, SEK 8.5235, forint 290.52, zloty 4.0067, koruna 24.8765, RUB 73.71, yen 118.35, sing 1.4370, HKD 7.7625, INR 66.63, China 6.5636, pesos 17.79, BRL 4.0290, Dollar Index 98.75, Oil $33.40, 10-year 2.16%, Silver $14.06, Platinum $876.41, Palladium $499.25, and Gold. $1,100.68

That’s it for today. Well, before I left St. Louis, I had a test done on my legs to see why they kept swelling up. I knew what it was, but you know doctors they have to have the evidence in front of them, so the test confirmed that I have bad circulation in my legs. I’ve now become my dad. My dad had a bad back, so did I, My dad had cancer that metastasized to his right hip, so did I, and my dad had bad circulation in his legs, and so do I! So, when I sit at a desk and write for hours, it’s not good. So, I’m trying something different this morning. I mean it is called a laptop, right? So, far, so good. and my feet are up, so no swelling yet! YAHOO! Sammy Hagar is singing his song: Rock-n-Roll Weekend on the iPod right now, and that’s seems so timely, given that we’re near the end of the letter, and the week, heading into what I hope is a Fantastico Friday, and Wild Weekend! Have a Great Day, and thank you for reading the Pfennig!

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