Focus shifts to the Fed…

* Split data
* Dollar lower against the field
* S&P Cuts Brazil to junk
* Quiet currencies this morning

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

Good day. And welcome to Friday morning. While it was a holiday shortened week, it certainly didn’t feel like it. Chuck will be back in the saddle on Monday, so thanks for bearing with me over the past several days but let’s get the weekend started with some thoughts from Frank Trotter.

“Friday, September 10th, 2015, Saint Louis, MO. It is important to hit “send.” Apparently I didn’t. Mike started the Pfennig off yesterday with a note – “I haven’t received anything from Frank so . . .” “What!” I screamed silently to myself, I wrote an introduction including a summary of some of the great things people wrote in response to my query about qualified workers. Since I am not yet in arms reach of my computer that intro will have to wait until Monday, as long as Chuck agrees upon his return. But looking back to the question I feel like I have been followed by welders since I added in that paragraph.

“I’m here to do some welding on the COOP ethanol plant” he said. I had circled the dark 1910 era mansion that has been converted to a B&B and found a door open. Actually none of the other doors were locked either but this is expected in the neighborhood. The woman managing the exquisitely had told me to meet her there and she would check me in. As I rounded the corner and headed to the living room a head popped up. I surprised him by walking in, and with my first question – “where did you get your training?” At my local community college he said. I related the information I mentioned Thursday that there are 500,000 more openings for welders than there are trained welders and he enthusiastically said – “cool” and turned back to the TV.

Ethanol is big business here in the Midwest and there are not one but two processing plants near this town of 3,700. The one across the Missouri river has been doing great, but the team running it demonstrates the problems of rent seeking activity. They did well on ethanol and then started a soy processing facility about 30 miles up the road. Then the Federal subsidies were cancelled and the word at the diner is that the plant is in deep trouble, living by and maybe dying by the sword. But let’s look on the bright side. “With all the pipeline work with the Sinclair terminal here,” a farming friend mentioned, “there are a lot of good welders.”

Thanks again Frank. As I mentioned yesterday, data here in the US was beginning to pick up so we had a bit more on the docket to evaluate. The initial claims held fairly steady at 275k, which marked the 27th consecutive week below 300k, and continuing claims remained unchanged at 2.260 million so the labor market continues to remain on track and was a check mark in the rate hike column for the Fed.

On the other hand, we saw the August import prices fall the most in seven months. In fact, prices fell 1.8% as compared to July and we have now seen declines in 12 of the last 14 months. If we expand the horizon to the last year, import prices have fallen 11.4% and marks the largest drop since September 2009. Obviously the drop in oil has a lot to do with this report but slower global demand and a stronger dollar continue to keep imported inflation in check. The results of this report and the associated 1.4% fall in export prices would come in under the keep rates on hold column, just in case the Fed members were keeping track.

Lastly, we saw July wholesale inventories fall for the first time in two years as businesses work through their stockpiles, so if that trend continues, it could weigh on manufacturing and economic growth going forward. Looking ahead to next week, there should be plenty to talk about. The highly anticipated and debated Fed meeting will come to a boil on Thursday and will hopefully put some of this back and forth to rest for a while. We also get August retail sales, Industrial Production, Capacity Utilization, and then some so plenty of data to go around.

We saw a bit more volatility in the foreign currency market yesterday as the disparity between the best performers and those at the bottom of the list was fairly wide. The rand and Aussie were firmly at the top of the leaderboard with nearly 1.5% and 1% gains respectively after we saw a positive jobs report out of Australia. The dollar was weaker against the rest of the field except for the New Zealand dollar and the Brazilian real as traders keep playing tug of war as to whether the Fed increases rates next week. The kiwi wasn’t able to recover from their central bank’s decision to cut rates, but the biggest loser yesterday was the Brazilian real.

This currency just can’t catch a break lately. If you missed the Sunday Pfennig from this past Sunday September 6, you should go back and take a look since Chuck did a full write up on the Brazilian real. Here is the link if you want to check it out:

Unfortunately, the prognosis for this currency is not good right now and then the decision by S&P to cut their credit rating to junk yesterday was yet another shot to the chops. While a downgrade may have been looming on the horizon, it wasn’t expected to happen just yet. S&P referenced the political problems and budget as the basis for the downgrade but more concerning was the fact a negative outlook is now in place so future downgrades are more likely. While Moodys and Fitch haven’t made a move yet, the general thought is they will follow suit at some point. With that said, the real was trading near a 13 year low of 3.90 after the announcement.

As I came in this morning, its been a fairly quiet day so far. It appears as though the currencies are taking a breather at the moment since most are trading with fractional returns. It was interesting to see the divergence between the Swedish krona and the Norwegian krone this morning as the SEK is sitting in first place with nearly a 0.50% gain while the NOK is in last place with a 0.50% loss. We had Swedish second quarter GDP come in a bit higher than expected so that gave additional credence for the central bank to keep rates on hold and appeased currency traders, at least for now. On the flip side, we had a measure of August inflation in Norway outpace the expert predictions but the fall in oil prices today more than enough to pull the krone lower, hence the position on the leaderboard this morning. Other than that, the dollar ends the week marginally lower and all eyes will now turn toward the Fed.

Currencies today 9/11/15. American Style: A$ .7059, kiwi .6288, C$ .7539, euro 1.268, sterling 1.5414, Swiss $1.0220, . European Style: rand 13.5735, krone 8.2270, SEK 8.3137, forint 279.18, zloty 3.7335, koruna 23.995, RUB 68.04, yen 120.72, sing 1.4148, HKD 7.7496, INR 66.47, China 6.3719, pesos 16.7467, BRL 3.8382, Dollar Index 95.618, Oil $44.73, 10-year 2.20%, Silver $14.52, Platinum $972.50, Palladium $582.50, and Gold. $1,106.25

Mike Meyer
Vice President
EverBank World Markets