Geopolitical Tensions Rule The Roost!

In This Issue.

* Currencies drift, but yen rallies!.
* Gold trades to psychological level.
* China prints two strong economic reports!.
* U.S. economy is weakening!

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

Good Day. And a Marvelous Monday to you! Whew! What a Weekend! I’m worn out from it! Friday evening saw me returning to the scene of the crime Thursday night, to continue the celebration. Saturday, I actually got outside, and worked in the backyard! WOW! It felt so good to be pitching in, but I got worn out quickly. And then Sunday was Easter, and the whole family was here, and we watched our Blues take a 3-0 lead in games in their playoff series, outside! And then the alarm went off this morning and I was brought back to the reality of a work-week. Buddy Miles greets me this morning with his version of the song: Down By The River, which was also done by Neil Young and Crazy Horse.

Well, N. Korea fired another test missile on Saturday, but it was a dud, so geopolitical tensions only got a reminder that N. Korea is a rogue member of nations, and that they are attempting to send a message to the world, especially the U.S. But in the overnight markets there’s not been much movement in anything. Currencies appear to be trading in the same clothes as Friday, and bonds got a boost from the news that the U.S. dropped the largest non-nuclear bomb in Afghanistan on Friday, but haven’t moved since then. Stocks are seeing a huge flight to safety of Treasuries with all the geopolitical stuff scaring the bejeebers out of stock investors, and finally Gold is sitting on the psychological figure I told you about on Friday, $1,291. So, if the technical charts are correct, Gold should be on its way higher from here.

Every day now, we wake up and check the news to see what’s going on with all the geopolitical tensions.. Hey, you know what? I’m tired of typing “geopolitical tensions” from now they are GT. I wonder what GT will bring us today? Hopefully nothing! All the GT really messed up traders’ books for month end last week, for they were too concerned with what was going on to square up positions, and cause some weakness in the currencies that I feared might happen going into month end.

Since Gold is sitting on that psychological level of $1,291 that I told you about on Friday, let’s talk about the shiny metal a bit, and see where that takes us, eh? So, the Fed is bound and determined to hike rates this year, right? So, let’s just for the sake of argument say that the Fed hikes rates two more times this year, wouldn’t that put the kyboshes on this Gold rally? Well, not if the rate hikes are already price in. Hmmm. And all this GT is underpinning Gold right now, and investors are forgetting about the Fed and their rate hikes.

Speaking of the Fed and their rate hikes. I’m still of the opinion that the Fed is hiking rates while the economy is weakening, thus making it even weaker, and by summer they are going to have to reexamine their rate hike stance, and probably have to begin to reverse those rate hikes, which then could possibly send Gold to the moon. Want some proof that the economy is weakening? Well, let’s see, 4th QTR 2016 GDP was 2.1%, and the other day, the Fed Atlanta, issued their estimate for the 1st QTR 2017 and it was only 0.5%… Now, if that’s not a weakening in the economy I don’t know what it! OK.. before I go on. this whole scenario regarding the Fed reversing their rate hikes is my opinion and I could be wrong.

But when the GDP drops like a rock from quarter to quarter, you have to stop and take notice, right? Has the effects of the Fed’s last two rate hikes begun to wear on the economy? It sure looks like it, when you take into consideration the Fed Atlanta’s GDP calculation. I was flabbergasted when I saw that Fed Atlanta print for GDP! I knew in my heart of heart that the economy was slowing, but brother did that ever confirm it! Now, that should be a shot of cold water to the face of any Fed member that still believes that hiking rates is appropriate right now..

Oh, I almost forgot to mention that In a Bloomberg survey last week, traders said they were the most positive on Gold since December 2015. So, Gold has that going for it!

In other currency news. Japanese yen continues to be the main beneficiary among the currencies, that is, from all the GT. I get the flight to Treasuries, and I get the flight to Gold, but what I don’t get is the flight to Japanese yen. But there it is right before my eye, and your eyes and for all the world to see. Japanese yen, which is the currency of a country with a list of problems longer than a country mile, is the currency that investors go to when there are GT. What in the world are these traders and investors thinking? Japan’s leaders don’t want a strong yen, and I wouldn’t be surprised if they aren’t trying to drum up some coordinated effort with the U.S. and Eurozone, to sell yen. It will be interesting to watch how this all plays out.

The euro, which used to participate in these flights to safety, is stuck in the mud, and likely to remain there for the time being. Yes, I told you last week that it sure seems as though the Eurozone’s debt problems have been put on the back burner by investors right now, which is a good thing for the euro, especially with the French election heating up and showing that the parties running for President are running neck and neck right now. I know that the populist vote thing that’s happened in the U.K, and here in the U.S. is on a roll, and everyone thinks it could spur a Le Pen victory, which would be very bad for the euro, but I’m not in that camp, and think that calmer heads will prevail here. If that happened, the leashes that have held down the euro would be cut loose. Just my opinion.

The daily small moves in the Indian rupee have seemed to faded away, but the rupee remains well bid at 66.46. And that makes sense to me as it keeps the currency from overheating, and forms a new base from which to move higher, once the next good piece of news comes from India prints. of course that has the opportunity to go the other way too, just so you get the whole picture.

The Chinese renminbi continues to trade around 6.88- 6.89, bouncing back and forth between those two figures. I expected to see the renminbi allowed to appreciate overnight though, given the good news this past weekend from China. China’s 1st QTR GDP expanded at the fastest pace in over two years, with growth of 6.9% for the 1st QTR. They also printed a better than expected Retail Sales figure for March. These reports printed this past weekend, and set up the Global Growth Revival Tent in a city near you! But all this euphoria didn’t impress the Chicken Littles here, and they immediately issued a statement that said that the 1st QTR Growth will be as good as it gets, for China still relies on stimulus. Hmmm. Maybe there’s some proof to that, but I think back to when I used to talk about China nearly every day, and I would tell you that China had this Treasure Chest of reserves that they could apply to whatever part of the economy needed it. Therefore I never got on board with the Chicken Littles here that said China’s economy would collapse..

And besides, if China is still using stimulus, one might say, “How’d you do that?” Because stimulus sure hasn’t worked in Japan, the U.S. and Eurozone!

And with the Global Growth Revival Tent going up again, the Aussie dollar (A$) is getting a little love this morning, but I expect more to come as the U.S. wakes up and sees the tent rising above all the negativity going on around. And kiwi is tagging along for the ride.

The Treasury 10-year yield is 2.21% this morning. A real illustration, along with Gold of course!, of the flight to safety in my opinion. And so the mortgage bubble just keeps getting more air blown in it. pretty crazy if you ask me, but, I understand with all the GT going on that Treasuries would be a destination of choice. My guitar playing buddy, and investment analyst, guru, Steve Sjuggerud, is smiling like the Cheshire Cat with this drop in yields, as he wrote a few weeks ago, how he saw bonds rallying in the face of the Fed rate hikes. And that’s exactly what they’ve done since he wrote that on March 30th.

The U.S. Data Cupboard on Friday had an awful print of Retail Sales for March, which I warned you would happen, given the indication from the BHI. March Retail Sales were -0.3%, worse than expected (-0.2%) And when you take out the falling Auto Sales Retail Sales only grew 0.1%.. Just another sign that the economy is weakening folks.

Today’s Data Cupboard is basically empty with a couple of 3rd Tier reports to print, but tomorrow’s Cupboard will produce two of my faves: Industrial Production and Capacity Utilization.. So, come back for that! HA!

To recap.. Geopolitical Tensions (GT) have the markets by the tail these days, and Saturday saw N. Korea’s latest test missile be a dud, but that didn’t lesson the worries, and this morning, there’s still a flight to safety, that includes: Treasuries, yen and Gold. Gold is trading at the psychological level of $1,291 I told you about on Friday, so if the techies are right, the shiny metal should love higher from here. China printed some very good economic reports for the 1st QTR and March respectively, and the Global Growth Tent Revival is coming to a town near you!

For What It’s Worth. This was in the NY Times, which I don’t normally scan for news, but. that’s where this resided so, you take what you can get, right? Anyway, this is another article about Corporate borrowings slowing, yet another sign that the economy is weakening and can be found here:

Or, here’s your snippet: “Many business owners and corporate executives have expressed unbridled optimism that President Trump can fuel economic growth and increase their profits.

Their borrowing habits, however, may tell a different story.

Some of the nation’s top bankers said on Thursday that businesses were feeling less certain that Mr. Trump can pull off his ambitious agenda to deregulate and cut taxes.

Many industries, the bank executives said, are increasingly cautious about taking on too much new debt, particularly after efforts to replace the Affordable Care Act failed last month, raising doubts about whether the president can get pro-business measures like tax cuts through Congress. And such political uncertainty comes at a time when the Federal Reserve has embarked on raising interest rates, which will make borrowing costlier.”

Chuck again. Yes, everyone wants to believe that there will be growth ahead for the U.S. but in reality there’s no signs anywhere that this will come to fruition..

Currencies today 4/17/17. American Style: A$ .7588, kiwi .7018, C$ .7521, euro 1.0627, sterling 1.2544, Swiss $.9959, . European Style: rand 13.3880, krone 8.5635, SEK 9.0097, forint 294.54, zloty 3.9897, koruna 25.0707, RUB 56.28, yen 108.35, sing 1.3957, HKD 7.7725, INR 66.46, China 6.8872, peso 18.50, BRL 3.1431, Dollar Index 100.31, Oil $52.72, 10yr 2.21%, Silver 18.59, Platinum $976.84, Palladium $797.53, Gold $1,291.60, and SGE Gold $1,294.53

That’s it for today. Well, it’s tax time this week, right? UGH. I’m so far behind on all of that, but I have them they are finished, and now I’m balking at filing them! Well, how about our Blues? Up 3-0 in the series with the Wild, who were picked to win this series by the experts, but remember what I said before it started.. “I don’t own a farm, but if I did I would bet it on the Blues”. They still have to win game 4, and that won’t be easy! My beloved Cardinals are really stinking up the league, after getting swept by the Yankees. My little Delaney Grace was so darn cute in her Easter outfit yesterday. The grandsons were dressed up too, but Delaney will steal the show any day! It was a grand day, enjoyed by all yesterday. I’m really late today, and have no idea how that happened! But I just looked down and I should have been finished writing a hour ago! So.. American sends up to the finish line today with their song: Tin Man. And with that it’s time to go. I hope you have a Marvelous Monday, and Be Good To Yourself!

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