Investors are all waiting on the April Jobs data.

* Investors await the April jobs data…
* Dollar continues to edge higher.
* RBA cuts inflation outlook…
* Gold still can’t find a bid…

And Now, Today’s A Pfennig For Your Thoughts.

Good morning and happy Friday. As is the custom when we pfill in for Chuck on the Pfennig, Frank has sent me an excellent introduction to today’s newsletter – so take it away Frank:

Since I am a little over two weeks out of shoulder surgery my primary obsession for ice hockey is out of the question for quite some time, and alternatives in soccer, and mountain biking are also banned. My PT cringed when I suggested a stationary bike and she gave me the ‘head bone’s connected to the neck bone’ lecture. Walking is a great thing that did receive a thumbs up so I’ve committed to hiking to work and other locations whenever the time schedule permits. I suit up with noise cancelling headphones for conference calls, stick the mobile phone in my sling, put on Google Glass to stay in touch, and head out (some have suggested that I deserve the over-60 geek of the year award). Typical of Saint Louis County the 5 mile route to work takes me through five cities ranging from Tony Ladue to affordable apartments in a slice of Brentwood. I pass both a home from near the top of the Forbes list and several homeless people near I-64.

On the way I am alongside the larger lawns for about 45 minutes. I estimate that about 20% are being mowed or otherwise groomed at any given point in time. Heavy duty pickups pulling trailers piled with equipment are the primary vehicles I dodge on the sections of the road without sidewalks. I’ve yet to see what I would guess is a homeowner participating in any way but pointing. Quite a change over the past 30 years. These are not neighborhoods that have felt the drop in median income we see in the larger economy – current median income today in the US sits uncomfortably below the 1995 level. In contrast those apartments in Brentwood were built immediately after World War II for the returning veterans and their families. A comparison of historical photos shows an almost identical look in the 1950’s – and with the cars parked out front the old photos look like Cuba today.

This contrast in wealth appears to be moving from academic debates eerily towards policy. My two cents is that government intervention will cause substantially more harm than good but our job here is not about our personal opinions but rather what to do about trends appearing on the horizon. In that sense Bill Gross has roiled the entertainment press a bit this week by capitulating to more Fed intervention. He doesn’t like it, like I don’t like the designated hitter rule, but we both have determined that we need to deal with the game as designed by the less competent, not how it should be played. Quoted across the financial press from his newsletter he says, “There is a rude end to flying helicopters, but the alternative is an immediate visit to austerity rehab and an extended recession. I suspect politicians and central bankers will choose to fly, instead of die.”

This is a corollary to a line we have all used in presentations now for almost 15 years – when presented with a choice of alienating their voter base by cutting spending or raising taxes, politicians will uniformly opt to kick the can down the road and hope inflation bails them out. Could this be why the Fed wants to boost inflation?

Thanks to Frank for getting us started this Friday morning, and I have another treat for Pfennig readers this morning as Chuck sent me note shortly after the Blues lost in overtime last night:

Well, the dollar continued its grip on the currencies and metals throughout our Tub Thumpin’, Cinco de Mayo, Blues losing in Overtime, Thursday. I actually stayed awake to watch the game through, but walked away right before the Stars scored in overtime to beat our Blues, tying the series at 2-2. I celebrated Cinco de Mayo at home with family, eating tacos, and watching hockey, a real Mexican fiesta I might say! HA! So, no Tub Thumpin’ for me, as it was infusion day, and now I’m sitting here, about to go into a deep sleep, with my head ringing and pounding, doing my best to help out the boys that will step up and take over the Pfennig on Friday for me on what I call my whacked out Fridays!

I was doing some reading as I watched the kids and Kathy loading up boxes to be taken to Andrew, Rachel, and Braden’s new home last night, and I came across a trader’s thought that he really didn’t think the dollar’s rebound this week had anything to do with the non-voting Fed member speeches that I talked about earlier this week. Instead, he thinks it was a correction, as the dollar had just sunk to a 1-year low vis-a-vis the Dollar Index, and it bounced off that low level, then add in the fact that U.S. Treasuries rallied also, and that there was a sell-off in Emerging Markets currencies that all happened before the speeches. OK, so maybe I was wrong about the Lockhart and Williams speeches causing the dollar rebound, but I’m sure they sure helped it along quite nicely, eh?

There had to be some major profit taking too thrown in, as if you were looking for a certain level and you saw it, you had to take it, right? This all doesn’t mean I’ve given up my thought that the strong dollar trend is ending. it’s time.. it’s long in the tooth. and, if the Fed doesn’t hike rates in June, it will be the strong dollar’s swan song, in my opinion, which could be wrong.

I’ll let my colleagues take it from here, and talk about the Jobs Jamboree, which takes place this morning. I’ve said all I’m going to say about this labor repot and said it yesterday.. if you missed class that day, you can find it at www.dailypfennig.com . Otherwise, have a Fantastico Friday, and I’ll talk to you Monday.

Wow – thanks to Chuck and Frank’s contributions, I really don’t have much space left to fill this morning! But I’ll share my thoughts on the markets before heading into the currency roundup. All eyes are focused on the April Jobs report which will be hitting the wires this morning. Economists have projected just over 200k jobs were added in April following a 215k increase in March. The jobless rate is expected to hold steady at 5.0 percent as formerly ‘discouraged’ workers re-enter the job market. The steady increase in jobs has not equated to an increase in wages just yet – and the April report probably won’t show any new wage pressure. Average hourly earnings are forecast to have risen .3% in April after a similar gain in March. That would equated to an annual increase of 2.4%, well below the 3% increase which many economists believe is needed in order for inflation to rise to the Fed’s 2% target rate. This will be the part of the report which has the most interest for me, as wage inflation is the only thing in my opinion which could force the FOMC into another rate increase. Without any wage pressure I don’t think the Fed raises rates until the end of the year, and at that point it will be more about ‘saving face’ again – just like December’s increase.

The dollar continued to drift lower yesterday as investors awaited this morning’s data. But there was one currency which didn’t benefit from the dollar’s weakness. The Aussie dollar dropped by over 1.25% vs. the US$ overnight after the RBA slashed their inflation expectations. Australia’s central bank now sees underlying inflation between 1 and 2 percent for 2016 a full percentage point below their previous estimates. Currency investors saw this inflation adjustment as a sure sign another rate cut is imminent. Swaps data imply an 80% chance of an interest rate cut at the RBA’s next meeting which will be held on June 9th. The New Zealand dollar was also caught up in the selling, dropping just over .6% vs. the greenback.

The pound sterling was another currency which struggled to book any gains vs. the US$ yesterday after a key services sector report showed the British economy is stumbling a bit. The PMI survey showed the service sector grew at its lowest rate in more than 3 years during April as the index fell to 52.3 from a reading of 53.7 in March. Remember back when the BOE was expected to be the next major central bank to follow the FOMC on their path to higher rates? Well questions about a possible BREXIT and weaker economic data have certainly derailed that thought.

Gold is looking like it will end the week well below the $1,303 high it hit on Monday. The shiny metal is trading about 1 percent below Monday’s 15 month high but could see some buying if this morning’s jobs data disappoints. Hawkish comments from some of the Fed members has weighed on the price of gold this week, but a job number below 200k could put a nail in any June rate hikes which should push the price of Gold back above $1,300. Silver has been beat up even worse than Gold this week, dropping by just over 3 percent from Monday’s 15 month high at $18. And both Platinum and Palladium have also followed the other precious metals lower this week as Fed members did their best to talk up the possibility of a rate hike in June. Again, I don’t think a June rate hike is a possibility and therefore I see this week’s drop in precious metals prices as a good opportunity to add to your positions.

Currencies today 5/6/16. American Style: A$ .7365, kiwi .6839, C$ .7767, euro 1.1421, sterling 1.4494, Swiss $1.033. European Style: rand 14.9538, krone 8.1953, SEK 8.1181, forint 274.05, zloty 3.865, koruna 23.651, RUB 66.2618, yen 106.95, sing 1.358, HKD 7.7595, INR 66.55, China 6.5202, pesos 17.9910, BRL 3.5347, Dollar Index 93.634, Oil $44.00, 10-year 1.74%, Silver $17.30, Platinum $1061.56, Palladium $596.42, and Gold $1,279.53

That’s it for today. Tough loss for our Blues last night but I still have confidence we will win in Dallas and then get past the second round for the first time in a whole bunch of years. The weather is supposed to be pretty nice here in St. Louis this weekend and I’m planning on heading over to my mom’s on Sunday to take care of some minor repairs/yardwork. Unfortunately she won’t be home as she took a quick trip down to Florida, but I’ll be sure to give her a call to let her know just how special she is to me. Make sure you remember your mother this Sunday! With that I will get out of your hair – I hope you have a Fantastic Friday and Wonderful Weekend. Thanks for reading the Pfennig.

Chris Gaffney, CFA
President
EverBank World Markets
1-800-926-4922
https://www.everbank.com