Hawks Are In, Doves Are Out!

* FOMC Minutes confirm what markets thought they would say.
* But currencies and bonds say, “OK, we’ve got this”
* Eurozone posts a wider Current Account Surplus!
* Following the leader.

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

Good day. And a Tub Thumpin’ Thursday to you! I think I need a little Tub Thumpin’ this morning. I get knocked down, but I get up again, nothing is ever going to keep me down. Brother have I been knocked down these past 8 years. The late Great George Harrison greets me this morning with his song: What Is Life? I was taking a personality test the other day, just for grins, and one of the questions was “Do you often contemplate what life means and why you are here?” I was taken back, because singing along with this song by George Harrison, the idea that I should think about stuff like that would be far-fetched!

Well, it certainly appears to me that the “Hawks are In. the Doves are out” at the Fed. The hawks are shouting louder and longer, and the doves are retreating, cowering down to get away from all the shouting. The Fed’s FOMC Meeting Minutes (FFMM) basically said what I thought they were going to say, and that the Fed is ready to hike rates. But are they really? Is this all talk? I guess we’ll find out in about a month when the FOMC meets again, and does something that I doubt has happened before, and that is hike rates a week before Christmas. Merry Christmas folks.

I thought it was certainly interesting in the way the bond guys reacted to the minutes. Well, they didn’t react at all, which tells me they have priced in the rate hike, and they believe they are set. Memo received, thank you! And then there’s the currencies and metals.

At first, they got slammed, and then rebounded. The price of Oil slipped below $40 briefly before climbing back above the figure. And this morning, the currencies and metals all seem to be on the rally tracks. Yes, even the poor beaten down euro is on the rally tracks this morning. And Gold is up $3 with Silver up a nickel. So, what’s up with all this partying on the rally tracks for the currencies and metals in the face of a Fed rate hike? Well, again, there’s still no assurance that the Fed really intends to hike rates, especially with a statement like this: “it may well become appropriate to raise rates in December”. doesn’t sound like they are 100% committed does it to you? They left the door open there to bypass the rate hike. The door is not cracked open by much, but it’s open nonetheless.

But the thing I think that’s on the market participants’ minds is that this rate hike is 66% priced in (down from 70% earlier this week), and they are OK with that. The markets are also saying that they believe the Fed’s statements that they do NOT intend to go on a rate hike march in 2016 that would aggressively hike rates at each meeting. Oh great! So, going forward, we’ll have to see the gyrations of the markets ahead of each Fed meeting not knowing if that meeting is going to be the one! I think the markets should re-think their being OK with all of this.

So, I briefly mentioned that the beaten and beleaguered euro was on the rally tracks, and there’s good reason for that, and it’s not just about dollar weakness this morning. For once the euro has something to hang its hat on, and strut around. The Eurozone Current Account for September printed this morning, and the Surplus that resides here in the Current Account, widened in September from 17.7 Billion euros, to 29.4 Billion euros. I hope this widening of the Current Account Surplus wakes some people up, and shakes them until they get out of bed and realize they were too negative towards the euro!

I’ve long said that one of the main reasons the euro was able to maintain its large differential in price VS the dollar, is that the Eurozone had a Current Account Surplus, and the U.S. not so much. You’ve got to love surpluses! The euro was going along just peachy with this scenario, and then along came Greece. 2015 was the year of Greece. And now that Greece’s problems have been kicked down the road sufficiently, the euro can get back to enjoying the Current Account advantage it holds over the dollar. Will it be enough to keep the euro from falling to parity, as Goldman Sachs says? Only the Shadow Knows. In my rebel, contrarian style, I would flippantly say sure it can! But the logical side of me also knows that Goldman is like Lola. And what Lola wants, Lola gets!

The Aussie dollar (A$) and N. Zealand dollar / kiwi, are both leading the currencies on the rally tracks this morning, thus making them the best performers overnight. Makes sense to me. You take the currencies that already enjoy a rate differential VS the U.S. dollar, and then tell the traders that, “yes, they think the Fed will hike rates, but go at it more rate hikes gradually” and they see the rate differential narrowing, but not going away completely. And so they snuggle up to the A$ and kiwi, and ask for forgiveness for looking at another currency. HA!

Another currency that’s “hot” this morning is that currency that we talk about all the time, and has such great fundamentals that it’s difficult to not say great things about it. give up? Well, it’s none other than the Mexican peso! HA! This peso rally is not a case of a strong economic report, nor is it a case of an economic reform, or higher interest rates. It’s simply a case of what I just talked about with Aussie and kiwi. But I had to talk about pesos, with them performing so strongly this morning.

And the Swiss franc is stronger this morning too. But it certainly isn’t a case of it already enjoying an interest rate differential to the dollar! With this franc strength the Swiss National Bank (SNB) just had to say something to spook traders. SNB pointed out this morning that the franc is overvalued, and if this continues to be the case they (the SNB) will look to intervene. I do have to give the traders here a pep talk, so you’re invited to listen in if you care to.. Listen franc traders, don’t be bullied by the SNB! You’re stronger than that, You’re better than that, and you have a right to drive francs higher in price! Now, go out there, and give me 110% , with no mistakes, and by the end of the game, you’ll find yourself a winner! Now, let’s all put our hands together. Go!

Sorry, but I just thought the franc traders needed that. You know if I were a franc trader, and I received a memo like that from the SNB, I would fire one back to them, saying, “What’s the problem? The euro is stronger, so why can’t the franc be stronger too? Of course I would expect the SNB to shoot back a note reminding me that the European Central Bank (ECB) is most likely going to increase their bond buying program, and that the euro won’t be stronger too for longer.

In China. The renminbi appreciated overnight. the appreciations lately haven’t been of “size” and we all know that “size” matters, right? I have to think that the Chinese are still intervening in the currency markets and attempting to stabilize the renminbi. Yu Yongding, a former academic member of the People’s Bank of China (PBOC) monetary policy committee, and it’s with comments like this, that I see why he’s a “former member”.. let’s listen to Yu for a minute so you can see what I’m talking about. “I don’t know why the PBOC is so obsessed with the stability of the renminbi exchange rate.” Come on Yu, you do too know why they are obsessed with the stability of the renminbi. they need the IMF to see that the currency is stable!

The U.S. Data Cupboard yesterday just had the Housing Starts and Building Permits for Rocktober, and we got conflicting reports. Housing Starts were down -11%, but Building Permits were up 4.1%… I would imagine that we’re now getting to that point in the calendar year, when the weather is going to wreak havoc in certain parts of the country for building houses, but that won’t stop people from obtaining their Building Permit.

Today’s Data Cupboard had the usual Tum Thumpin’ Thursday fare for us, in the Weekly Initial Jobless Claims. But we’ll also see the Philly Fed Index (manufacturing for the region), the Bloomberg Consumer Comfort index, and finally something important. Leading Index for Rocktober. I always find this data interesting, in that it’s supposed to tell us what to look for going forward, but its printed a month in arrears. funny, eh?

So, Gold is up $3, whoopdeedo! I’ve gotten a kick out of all the writers out there this week that followed up on my thought from early Monday Morning that I was shocked that Gold wasn’t stronger by $25 to $50 because of the events in France on Friday. There are so many writers now questioning the intelligence of this non-move by Gold come Monday morning. I have to think they are all Pfennig Readers and thought that I hit something on the head there. HA! I read a smart Alec report on this that sounded like I talk, but can’t write, but just for a tease. He said that he wasn’t aware that world crisis events were what moved the stocks higher and Gold lower. And goes on from there. Pretty funny, if it weren’t real.

But all this stuff reminds me of the song from Peter Pan. Following the Leader, the leader, the leader, We’re following the leader, wherever he may go! (now that song is going to be in your head the rest of the day, you’re welcome! HA!)

To recap. The Fed’s FOMC Meeting Minutes were just as advertised. the Hawks are in, the doves are out, and the Fed thinks that “it may well become appropriate to raise rates in December”.. But the markets didn’t react to this like one would have thought they would. The currencies rallied, Bond yields remained steady Eddie, and it was as if, the markets are telling the Fed, It’s OK, we’ve got this all under control. Chuck still thinks that the statement above, leaves the door open to bypass a rate hike, but what else would you expect him to say! The Eurozone posted a very strong Current Account Surplus, and thus reminds traders that the Eurozone has a surplus, and the U.S. doesn’t.

Before I head to the Big Finish this morning.. A dear reader, (thanks Scott!) sent me a note yesterday to tell me that “In an interview with Neil Cavuto on Fox Business Carli Fiorina says she sees no reason for the Fed to raise rates in December. She didn’t quite commit to saying they wouldn’t, but close.” So, someone running for president agrees with Chuck. Hmmm.

Currencies today 11/19/15.American Style: A$ .7170, kiwi .6520, C$ .7535, euro 1.0710, sterling 1.5270, Swiss $ .9835, . European Style: rand 14.1505, krone 8.5335, SEK 8.6950, forint 289.65, zloty 3.9710, koruna 25.2430, RUB 64.89, yen 123.10, sing 1.4150, HKD 7.7500, INR 66.18, China 6.3791, pesos 16.66, BRL 3.7525, Dollar Index 99.16, Oil $40.80, 10-year 2.25%, Silver $14.20, Platinum $856.13, Palladium $538.06, and Gold. $1,073.18

That’s it for today. Well, BIG congratulations go out to my longtime friend, and colleague, Chris Gaffney. Chris completed his first Ironman this past weekend in under 12 hours! (that was his target) Way to go Chris! Not bad for an old man of 50! HA! That was a job well done, a job that had Chris training for over a year. Well done! Todd Rundgren is singing his song: It Wouldn’t Have Made Any Difference on the iPod right now. Todd is quite the different personality and musician, to see him in concert you would know what I’m talking about. Well, my visit to the hospital for a scan that should have taken me a total of about 30 minutes from sign in to walking out the door ended up taking 3 hours.. UGH! Long story short, people are dolts! HA I was talking to my friend, and colleague, Jack Stapleton, yesterday, and I told him that The good thing about stopping the current drug I’m on, the one I had to go and get an IV put in every two weeks and sit in the infusion center, I won’t have to go to that infusion center any longer, with all those very sick people! Kathy says, ” that’s typical of you, you think everyone here is sick, but you’re sick too!” I tell you I get no respect! I’m the Rodney Dangerfield of St. Louis! Alrighty then, now that we’ve established that, let’s go out and make this a Tub Thumpin’ Thursday!

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