FOMC Throws A Cat Among The Pigeons!

* Markets think rate hike is carved in stone for December!
* RBNZ bashes kiwi.
* Dollar buying appears to be consolidating.
* Oil price rebounds!.

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

Good day. And a Tub Thumpin’ Thursday to you! The late great, Dan Fogelberg greets me this morning with his duo song, Aspen/ These Days. The intro to the song is an orchestral piece that’s so beautiful, and relaxing, and then the song goes into a complete change. Sort of like the markets every day! HA! Well, we have something very important to discuss this morning, not important to me, but important to the markets, and the currencies, so I might as well quit beating around the bush and get to it.

Well, the Fed’s FOMC met yesterday, and they left everything unchanged. Everything that is except their words. And while there was no press conference after the rate announcement, there was a statement that follows, with every rate announcement, and it was in this statement that some noticeable words were left out, and added. Let’s go to the tape. The Fed’s FOMC members were a little less dovish than they were after their last meeting in September. They took out the phrase that “they had worries over global economic and financial developments” and replaced them with, “they would monitor them”. So, that’s was a roadblock to a rate hike that was removed. They also included a phrase about how “they would determine whether it will be appropriate to raise the target rate at its next meeting”, which happens to be in December.. And then decided to give a “on the other hand” comment about how the “pace of job growth has slowed”. So. What did you get from that statement? I g
ot nothing, absolutely nothing, say it again!

But. The markets sure seem to have gotten the message that the Fed is going to for sure this time, no delays, no excuses, really, truly, swear on my mother’s grave, that this time The Fed will hike rates in December. it’s a done deal according the currency traders who went out and bought dollars like funnel cakes at a State Fair! I was shocked to say the least! Just what the heck did they see that gave them that “it’s carved in stone” feeling about a rate hike in December? I shake my head in disgust, at how easily it is to snooker currency traders these days. Shoot when I began in the business, currency traders were aloof, and full of themselves, they looked under hoods, and around corners to make sure they were making the right moves. These days, they go “all-in” on any statement. Reminds me of the words to a song. these days I sit on cornerstones, and count the time in quarter tones to ten, don’t remind me of my failures, I’m well aware of them.

Yes, my failures. I know, I know, I really thought that this FOMC meeting was a rubber stamp meeting, and then afterward, I didn’t get the currency move one iota. I fail to change with the nilly willy traders that just don’t look into things before going all-in.. I take full responsibility for remaining steadfast in my training and education that tells me this is going to end up badly for those that took the bait and swallowed it hook, line and sinker.

But then I should have realized it was going to happen given the fact that I told you about the other day regarding how Goldman Sachs has already carved in stone a rate hike in December, and 100 more Basis Points of rate hikes in 2016. Things that are completely against my position. Well, I guess we’ll find out the real direction soon enough, right? 6-weeks from now, the Fed will meet again, and we’ll see just how permanently that carving in the stone is.

Well, let’s stop right there on that discussion, because I’m really beginning to get angry, and I don’t think my keyboard on the laptop will make it if I continue to pound on the keys like this! There was other news last night, but it’s not like they have the weight on the markets like a Fed meeting that carves a rate hike in stone! But, just for old-time sake, let’s go see what’s going on in the rest of the world.

The Reserve Bank of New Zealand (RBNZ) did exactly what I expected them to do. They left their Official Cash Rate (OCR) unchanged, but in their statement following the rate announcement, they didn’t miss an opportunity to bash kiwi strength, and bash it they did, and kiwi came out of the meeting bruised and battered, folks. it was ugly. Here is the main part of what they said that hurt kiwi. “CPI inflation remains below the 1 to 3 percent target range, largely reflecting a combination of earlier strength in the New Zealand dollar and the 60 percent fall in world oil prices since mid-2014.

Annual CPI inflation is expected to return well within the target range by early 2016, as the effects of earlier petrol price falls drop out of the CPI calculation and in response to the fall in the exchange rate since April. However, the exchange rate has been moving higher since September, which could, if sustained, dampen tradables sector activity and medium-term inflation. This would require a lower interest rate path than would otherwise be the case.”

It was subtle, but the markets didn’t miss this one! The RBNZ basically said, that kiwi strength has hurt their ability to get inflation to rise, and if kiwi strength continues, then the RBNZ will have no other choice but to cut rates further.

Look. I’m no dummy, I didn’t just fall off a turnip truck, and I was born at night, just not last night! The RBNZ is going to cut rates, probably in December, no matter what kiwi does. But shoot if they can get the currency weaker by saying stuff like this, then that’s like manna from Heaven! And to think that I used to think of the RBNZ as a “prudent Central Bank”.. AS IF!

The euro, which is the offset currency to the dollar, took another blow to the midsection after the FOMC meeting statement, as the dollar was getting bought, hand over fist, the euro was getting sold. And dropped throughout the rest of the day, and through the night, falling all the way to 1.0925. But it appears that some consolidation in the dollar buying began in the early morning overseas, and the euro has recovered to 1.0955, small but, a sign of consolidation, I do believe. You know, that currency traders look around and say, “Whoa there partner, we just went way too far, too fast with the dollar buying, let’s cool our jets here”.

So, far this week, we had the Aussie CPI print weaker, we had U.K. 3rd QTR GDP print weaker than expected, we had the Riksbank expand their bond buying program, we had the Fed carve a rate hike in stone, and we had the RBNZ bash kiwi strength. it’s all gone bad for the currencies this week, folks. We still have the Bank of Japan (BOJ) meeting, and the Canadian 3rd QTR GDP to print. Recall, I said earlier this week that this would be a good week for the BOJ to announce more stimulus, given the European Central Bank’s (ECB) announcement last week, and the Chinese rate cut. My thought was that they could slide in there right between those two things and not have stones thrown their way. But now, with all this mess this week, they’ve got even more cover to hide behind, IF they want to use it.

You know though, it hasn’t been all sunshine, lollipops, and rainbows for the U.S. economy this week either, but who’s counting? That’s funny, right when I typed that, “but who’s counting?” the Counting Crows came on the iPod. So, I guess the Crows are counting! HA! We’ve seen New Home Sales fall 11%, Durable Goods Orders print negative, with the previous month’s negative number revised downward. Capital Goods Orders print negative, the Markit Services PMI drop but remain above 50, Consumer Confidence drop big time, and some other not-so-important data prints not look so pretty.. But these aren’t the droids the markets are looking for.

The price of Oil rebounded yesterday and overnight, which was timely, given the drop this week was beginning to gain momentum. But the rise in the price of Oil hasn’t helped the petrol currencies much this morning. Yesterday I told you that the U.S. had announced that they would begin to sell their Strategic Oil Reserves in 2018. I flipped out about that, but then thought about it more as the day went along yesterday. 2018 is nearly 2 years from now, there will be a new administration, and who knows what will happen in the next 2 years? So, I’ll just put that on the back burner for now and let it simmer.

Gold & Silver are stronger this morning, but they too had difficulty with the dollar buying yesterday, and remember, Goldman told us that Gold will suffer with Fed rate hikes. You know, I just noticed that I’m really kind of combative this morning, and very much a smart-alec, which tells me that I had better get to the end quickly today, before I say something that I get in trouble for! HA! That’s good that I reminded myself of my limitations because I was going to talk to you about a message I received from a dear reader that talks about Central Bank participation in the CME (commodities market). Hey! Who says you can’t teach an old dog a new trick?

Well, the U.S. Data Cupboard today doesn’t have much for us, except the first look at 3rd QTR GDP here in the U.S. Now, I’ve been telling you about the “tracking of 3rd QTR GDP” and the last report was that 3rd QTR GDP would print at 1.5%, down from the supposed 3.9% of the 2nd QTR. The consensus is for a 1.7% print. But I’ll stick with my “tracking” at 1.5%… Besides, it’s just the 1st look, there will be 3 revisions before this data finally gets put to bed. They key here though is to look at the difference between 3.9% and 1.5%… The economy is going backwards, but don’t worry, the Fed has our backs, they’ve carved in stone a rate hike in 6 weeks!

Oh, brother! Can we all just settle down here? And stop with the “carved in stone” talk? HA! Hey! I didn’t trade the dollar like the rate hike was carved in stone yesterday. So, there!

To recap. Well, the FOMC statement threw a cat among the pigeons yesterday, and got the dollar bulls all lathered up and ready to buy dollars, which they did by the truck loads! The markets and traders believed that the Fed is saying that this is it, this is the month (December) they are truly going to hike rates. Really! No, head fakes this time, this is the real deal! Chuck didn’t get that from the statement, but the markets and traders did, and that’s all that counts! The currencies got whacked along with Gold & Silver. This morning it appears that we might be seeing Consolidation to the dollar buying, but we’ll have to see what the U.S. traders think about that. The RBNZ left rates unchanged and then went about bashing kiwi strength, which led to kiwi selling. The price of Oil has rebounded but with all the dollar strength, the oil price rebound hasn’t helped the petrol currencies today.

For What it’s Worth. Yes, it’s back, but like I said previously, I’ll have one every now and then, and this is one of those now and then times! I read this yesterday, and thought OMG! This sounds like Y2K stuff! Any-old-way, I think it was interesting, and so here you go! I found this in my Casey Research email.

“Jonathan Johnson, chairman of online retailer, said in a recent statement:

We are not big fans of Wall Street and we don’t trust them. We foresaw the financial crisis, we fought against the financial crisis that happened in 2008; we don’t trust the banks still and we foresee that with QE3, and QE4 and QE n that at some point there is going to be another significant financial crisis.

So what do we do as a business so that we would be prepared when that happens? One thing that we do that is fairly unique: we have about $10 million in gold, mostly the small button-sized coins, that we keep outside of the banking system.We want to be able to keep our employees paid, safe, and our site up and running, during a financial crisis.

We also happen to have three months of food supply for every employee that we can live on.”

Chuck again. Well, that’s not that far away from those of us that have diversified with currencies and metals have been doing. Preparing for a financial crisis. I just found his admission of owning $10 million in physical Gold as very interesting indeed!

Currencies today: 10/29/15.American Style: A$ .7090, kiwi .6690, C$ .7565, euro 1.0965, sterling 1.5255, Swiss $1.0110, . European Style: rand 13.7955, krone 8.5730, SEK 8.5330, forint 284.10, zloty 3.8965, koruna 24.7205, RUB 64.45, yen 120.95, sing 1.4045, HKD 7.7500, INR 65.30, China 6.3596, pesos 16.67, BRL 3.9220, Dollar Index 97.40, Oil $45.59, 10-year 2.08%, Silver $15.90, Platinum $994.80, Platinum $673.58, and Gold. $1,158.36

That’s it for today. Well, the KC Royals seem to have control of the World Series so far. But throughout W.S. history, I’m sure there have been many times when the home team took a 2-0 lead only to see the other team come back in their own ballpark. And with the way they do things now, which to me is purely stupid, the non-home team gets 3 consecutive games in their own ballpark, which seems insane to me. Sure, the last two games go back “home”, but at that point the Series could be over! In this case it won’t be, but I stand steadfast with this thought. You know, I completely missed this yesterday, but yesterday was the 50th birthday of the Gateway Arch here in St. Louis. The Arch is a real marvel. just to go and stand under it, and look up. I remember as a kid we got to watch the last piece put in place on TV in school! Guitarist Duane Allman died on this day in 1971, and let us not forget that it was on this day in 1929, that the stock market crashed. And in 1966, Quest
ion Mark, and the Mysterians had the number 1 hit song.. 96 Tears. remember that? Alrighty then, it’s time to make sure you know that I hope you have a Tub Thumpin’ Thursday!

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