FOMC Week Is Finally Here!

* 20% odds of a Fed rate hike.
* Currencies are mixed today.
* Oil sees significant drop in price!
* Gold rebounds.

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

Good Day. Or I guess I should say, Good Day Mates! And a Marvelous Monday to you! It’s Talk Like A Pirate Day! So, get the eye patches out, the hooks, and peg legs, and let’s have some fun today with this! A little parrot told me that it’s a “food day” in the office today, and the mates are supposed to bring in “pirate food”. I won’t be able to participate today, as I had an awful night, which is weird, because the previous two nights were very good, and I really thought I had turned the corner. My infusion last week, really knocked me for a loop this time, but I’m fine, no worries. It’s a FOMC week. Oh boy! Can it start today, please? Please, pretty please with sugar on top? HA! I think the FOMC meetings are a waste of the markets time, but then that’s just my opinion. Steely Dan greets me this morning with their song: My Old School.

The week is starting out with the odds of a rate hike this week, at 20%, so no rate hike, is what they are saying, but then all they had to do was read the Pfennig, and they could have saved themselves some time and trepidation. But they don’t, shame on them I must add!, and so, we’re down to the cheese that binds this week with a FOMC meeting. With the odds of a rate hike so low, the Fed members have to realize that to hike rates now would be a shock to the markets, and since they have become so “markets minded”, I would think that they only question about the FOMC meeting is what Janet Yellen will say in the press conference following the no rate hike announcement.

If you ask me, and I know you didn’t, but, you’ll get to hear my Pfennig’s worth any-old-way! I think Yellen will should dovish in the press conference, and really give the markets the idea that there will be no rate hike this year, although, I’m sure she’ll want to make certain that she leave a crumb on the path of a December rate hike idea. You know, just in case she wants to retrace her steps. What else could she be in the press conference? The recent economic data has really been soft, and slow. She sure couldn’t say, “we’re data dependent, and therefore a rate hike is still on the table, because the data has been so strong”.

The currencies this morning are mixed, with the Antipodean currencies the front runners, joining the Russian Ruble as the best performers overnight. Yes, that’s right, I said the Russian ruble is a best performer overnight, even in the face of a rate cut last week by the Central Bank of Russia (CBR) and a significant drop in the price of Oil! Now, you can understand why the Aussie dollar (A$) and New Zealand dollar / kiwi are on the rally tracks again, because their positive rate differential to the dollar isn’t going to be narrowed this week, but the ruble? With those two strikes on the outside corner registered against it? I think you can put this down as one of those strictly rate influenced moves. Yes, the CBR cut rates last week, but they still remain high, with a HUGE rate differential to the dollar, euro, yen and sterling.

In Australia overnight, a new Reserve Bank of Australia (RBA) Gov. was introduced. Gov. Lowe, will take the reins from Stevens, who was OK, in my opinion. Stevens would do something good, and then something bad. But given his situation with a Chinese slowdown, I think he did OK. Now, Lowe has the reins, and we’ll see what he’s made of soon enough, but first tonight we’ll see the color of the last RBA meeting minutes, which are not likely to stir the markets from this current feeling that the A$ should be on the rally tracks.

In the Eurozone today, we should see the latest PMI’s (manufacturing indexes).. I don’t know if you’ve been following this data from the Eurozone or not, but for those of you who have not, let me tell you that this data has been quite resilient so far this year. And has shown an underlying nascent strength. The euro remains in a tight range between 1.11 and 1.13, I would have liked to have been in Bermuda with Chris and Frank last week so I could hear what the creative minds of people like Alex Green, Mark Lichtenfeld, Steve Sjuggerud and others think about the future of the euro. I was reading an article this past weekend, by a Gold guru, Egon Von Greyerz, who believes that the euro won’t survive, and that will lead Europeans to Gold. I find that to be a bit “out there”, but I guess it could happen. Just because I don’t think so, doesn’t mean it won’t!

Speaking of Chris and Frank, I do thank them along with Mike for picking up the Pfennig last week while I was having my infusion. It’s nice knowing that they are there for you dear readers!

The Bank of Japan (BOJ) will also meet this week, and I’m so tired of saying that this is the meeting where the BOJ will announce additional stimulus, and then it not happen, so therefore, I’m not going to do that this time! This delay by the BOJ is so NOT like the BOJ! They normally have no qualms about announcing a new stimulus, or plan to deal with the slow economy. Is that so-called Shanghai Accord that’s throwing down a road block for the BOJ? Recall, the so-called Shanghai Accord was supposedly an agreement to allow the yen, euro and renminbi to rally VS the dollar. The yen has been the main beneficiary of any Accord, if there really was one. And that’s why they can’t announce any new stimulus at this time, because any announcement would weaken the yen. I guess if you keep counting the things that point to an Accord, you eventually find that there probably was one!

I see where Lola, AKA Goldman Sachs, is calling for a weaker dollar VS G-10 currencies and Emerging Market currencies. Let’s listen in to Lola. “We expect no move in September but anticipate the Fed will signal that a rate hike is still possible this year, while the pace of tightening will be even more shallow and gradual than previous Fed projections.”

The price of Oil took a significant step backward in the past few days, dropping through the $45, and $44 handles down to a $43 handle. Venezuela said that they thought the chances of an agreement to freeze production could come soon, but Oil traders aren’t buying it, and besides, with the glut of Oil supply right now, what difference would a freeze in the production levels be? This drop in the price of Oil has really put some heavy weight on the Petrol Currencies, save the Russian ruble today.

Hey, did you hear the news about the MSCI? Well, I say that knowing all too well that you probably didn’t, because they tried to run this announcement under the cover of darkness, and without fanfare. I’m talking about the MSCI, you know the HUGE market indexes that large institutions follow? Well, according to Steve Sjuggerud, the MSCI announced last week that they had created 20 new Indexes that will include Chinese A-Shares (stocks), the first such inclusion in any major index of Chinese stocks.. WOW! Hasn’t it been just like watching a baby roll over, then become a toddler, and crawl, pull itself up and take those first steps. Then run, fall, and get back up and run some more? And so on. That’s what it’s been like for me to watch China these past 13 years that we’ve followed China and offered a Chinese renminbi deposit account. They just got past those awkward middle school years, and are heading to High School now.

Don’t look now, but foreign Central Banks led by China, are unloading U.S. Treasuries at a quick pace. In June $335 Billion was the total of foreign Central Banks (FCB’s) Treasury sales so far this year, and in July the number hit $343.4 Billion! Uh-oh! That number represents well over a third of a Trillion in Treasuries sold in the past 12 months. Now, this isn’t any orchestrated plan to unload Treasuries, for each country has their own reasons for selling their Treasuries, like China needs the funds to finance their currency interventions, and other countries just “need cash”! The total of Treasuries held by foreign Central Banks hasn’t been this low since 2012. But not to worry! What me worry? No way! The Fed is always there as the buyer of last resort, and that, my friends is why yields on Treasuries, are ratcheting higher at a faster pace.

Speaking of Treasury yields ratcheting higher, they certain have ratcheted higher in recent weeks, but I don’t think for one minute that this is something that’s going to continue. Not with the Fed buying to offset the sales. And the 10-year yield has already backed off its level of last week when it rose to 1.73%, today it’s 1.69%… And I think we’ll eventually see it fall back to previous levels.

Gold lost $4 on Friday, but is up $6 in the early morning trading today. India, the world’s second largest Gold consumer behind China, saw their Gold imports drop significantly in August. But remember, those are the “official numbers”, and don’t include the Gold that gets smuggled into India to avoid the taxes. An Indian Gov’t official, Rajesh Khosla had this to say. “falling gold imports may be great news to the government, as it is helping keep the current account deficit in check, but it seems nobody is bothered abut growing smuggling of the yellow metal.”

I think we should take the drop in official Gold imports in India with a grain of salt, and move on to other things. Like how this is an important week for Gold, in that should the Fed leave rates unchanged, and Yellen talks dovish in the press conference, those two things should underpin Gold for a move higher.

Well, the U.S. Data Cupboard is back to being pretty much empty. I did want to point out that the BHI was bang on last week with its indication that August Retail Sales would disappoint, and that’s exactly what they did.. .Disappoint! Down -0.3%, in a month where we should have seen back-to-school sales, and other items being bought for the College kids moving into apartments or dorms. So, today and tomorrow will be directionless as the markets wait for Wednesday’s FOMC, and press conference.

To recap. The currencies are mixed today, with the A$ and kiwi along with the Russian ruble the best performers overnight. The odds of a Fed rate hike this week are 20%, so not much hope for a rate hike. And Chuck thinks that Yellen will be quite dovish in her press conference, because, well, the Fed says they are data dependent, and the data has been weak and soft lately. That thought has given Gold traders new resolve, and Gold is up $6 in early morning trading today. The BOJ meets this week too, but don’t expect anything from them either! Is it all tied to the Shanghai Accord? It does appear to be!

For What It’s Worth. This is another interactive FWIW today. last week I gave you the 17 shopping habits to see if you fell under one of those, and today, I have a quick 7 question quiz to see if you have a good Work-Life Balance. you can find this here:

Chuck again. please do take this quiz, because, well, if you are a workaholic then you need to stop before bad things happen! Look at me, I was a workaholic, working 13, 14 hours days, weekends, and had stress up to my eyeballs. And then one day, it all came to an abrupt halt. So, take the quiz and have a great day!

Currencies today: 9/19/16. American Style: A$ .7550, kiwi .7310, C$ .76, euro 1.1165, sterling 1.3055, Swiss $1.0205, . European Style: rand 14.0730, krone 8.2875, SEK 8.5730, forint 275.66, zloty 3.8504, koruna 24.2055, RUB 65.87, yen 101.85, sing 1.3635, HKD 7.7548, INR 66.96, China 6.6720, peso 19.55, BRL 3.2620, Dollar Index 95.85, Oil $43.72, 10-year 1.69%, Silver $19.15, Platinum $1,027.25, Palladium $675.83, and Gold. $1,316.05

That’s it for today. Kathy has jury duty today. I told her that she could get out of it by telling them that she was my care giver. But she refused to lie.. .HA! So, I’ll be home alone today, hopefully, I will get back into the office tomorrow! My beloved Cardinals split 4 games with the Giants, when they needed to take 3 of 4 or sweep them! UGH! 12 games left, and they are one game out of the Wild Card. The Mets are playing the Little Sisters of the Poor, I think, and they have an easy schedule, so this will be quite difficult. My Missouri Tigers had the game on Saturday night, until less than 2 minutes to go, and then lost it. UGH! That would have been a signature win/ upset of Georgia, but it wasn’t meant to be, I guess. I’m really running late today, so I apologize, and hope to do better tomorrow. Thank you for reading the Pfennig, and I hope you have a Marvelous Monday. Be Good To Yourself!

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