Is The IMF Greasing The Tracks?

* Dollar rebounds on first day after April.
* Greece appears to have blinked first.
* U.K. election this week, so far it’s a toss up
* Zero Hedge points out manipulation.

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

Good day.. And a Marvelous Monday to you! May the Fourth be with you. HA! Whew! I’m worn out from the Baseball games this past weekend, which featured a sweep of the Pirates, and 3 consecutive extra inning walk off wins! Classic, old-school, baseball with two teams evenly matched, and both waiting for the other team to blink. All the kids were over yesterday, as I fired up the Big Green Egg, and we watched the game together, except the end. Everyone had given up, except darling daughter Dawn, and Dad, we watched the walk off home run and then rubbed it in to the rest who had gone inside! HA!

Speaking of waiting for a team to blink. Chris sent me a note on Friday, saying, “Sounds like Greece blinked first”, and he forwarded an article that talked about some concessions that Greece had agreed to, so that they could remain in the euro. This is the first step of kicking the can down the road for the Eurozone and Greece. Chris added: “Not that the stare down is over, but certainly sounds like the Greek leaders are realizing they need to stay in the euro”. Yes, it sure does.

The “concessions” haven’t led to a euro rally though. The euro’s April rally ended with the month, and May is looking as though it will be a tough row to hoe for the euro, or at least it looks that way from the start. As I kept reminding you during the April rally, which actually ended up being the best month for the euro since 2010, came about from all the weak data in the U.S., it wasn’t about anything good going on in the Eurozone. And with April behind us now, Traders are thinking that the data here in the U.S. is going to begin to look better.. Why would they think that? Because the Fed told them last week that it was going to get better. I’m not buying whatever it is they are selling, folks. I’m from Missouri, they are going to have to show me!

And I get all creeped out, thinking that these guys (Traders) are all hanging their hats on the Jobs Jamboree that will take place at the end of the week on Friday. Let me put it this way. I have NO DOUBTS, the jobs numbers will be better in April than they were in March. And that’s all I’ll say about that now.

While I’m on the subject of U.S. Data. Remember when I told you Friday that the U.S. ISM Manufacturing index was going to print for April that day, and it would be the first test to see if the Fed’s call that the very weak 1st QTR was just “Transitory” was fact or fiction. I also told you the consensus was for this data to stop the trend toward weaker prints each month. Well, guess what? The April ISM was 51.5, same as March’s number. So no increase, no change that would make one think the 1st QTR was just “Transitory”. yes, you could say, but, Chuck, it didn’t fall again. and I would say yes, but it also didn’t rise, which makes me believe the manufacturing sector is just muddling along.

The Reserve Bank of Australia (RBA) will meet tonight (tomorrow for them) and make a rate decision. I still don’t believe Australia needs a rate cut. Granted I’m not there, and my view from the cheap seats is from thousands of miles away. But the RBA is going to take the “Everybody else is doing it” approach, and probably cut rates this evening. The Aussie dollar (A$) hit 80-cents last week, and that level has proved to be much like the star that shines the brightest before it burns out, and it was right after hitting 80-cents that Traders began talking about a rate cut by the RBA. Hmmm. I wonder where they got that idea? You don’t think the RBA whispered sweet nothings into the ears of the Traders do you? Nah, that wouldn’t happen. would it? I don’t doubt it for a minute that it happened just like that, for the RBA saw the A$ 5-cents away from the 75-cents figure they’ve stated that would like to see the A$ trade, and decided they had better do something. Of course I don’t know that to be fact. Just an observation, like I said.

So, May is starting off in the U.S. dollar’s favor, even after the week before IMM Positions report showed the biggest drop in long U.S. dollar contracts since the week leading up to the March FOMC. 35,000 contracts were cut last week, with the biggest beneficiary to the cut going to the euro, where net short contracts were cut back by 17,000. the pound sterling and Mexican peso were the only currencies that saw their net short positions increased!

And that makes sense given the U.K. election is this week, and it’s still up in the air as to who will win, and if they do, they probably won’t be able to form a coalition government. And we’ve talked about unknowns being bad for currencies for as long as I’ve been writing this letter, which is in its 23rd year.

The Chinese renminbi/ yuan was weakened a bit overnight, stopping the string of appreciation that took place last week. I have to tell you that The Wall Street Journal (WSJ) is reporting that the IMF is close to declaring China’s renminbi / yuan to be fairly valued for the first time in more than a decade.. The WSJ says that “this will be a milestone in the country’s efforts to open its economy that would blunt U.S. criticism of Beijing’s currency policy”. Sounds like the IMF is greasing the tracks to include the renminbi / yuan in the SDR’s, like I’ve been talking about. For the IMF has not been a fan of Beijing’s currency management in the past. China must be exerting a lot of power here folks. They very badly want the renminbi / yuan included in the SDR’s for that would be a major step toward them removing the dollar as the reserve currency, which has been their plan for quite a few years now.

I was writing and doing weekly videos to subscribers of the Currency Capitalist monthly newsletter published by the Sovereign Society in 2008, when I first began to notice and write about China’s Currency Swap agreements, which they had signed with most of the Asian countries and Belarus when I first noticed what was going on, so let’s say, it was 2006 that they began this quest. I first told the audience in Orlando at the Money Show, in 2010, that I thought the renminbi would remove the dollar as the reserve currency by the end of the decade. So we are now ½-through the decade, and look at all the progress the Chinese have made in 5 years?

I don’t talk about the dollar losing the reserve status flippantly either. I also tell audiences that to lose the reserve status is a devastating thing to a country. I always refer back to, as a kid, watching the Beatles the first time on the Ed Sullivan show, and how they showed us pictures from the Beatles home town of Liverpool, and how depressing those pictures looked. That was the U.K. economy after being stripped of the reserve status for the pound that took place first in the 1920’s but got it back when the U.S. went through the stock crash and depression, only to lose the reserve status for good after WWII. It took the U.K. 50 years to recover from the loss of the reserve status, and it was only because Richard Nixon took the U.S. off the Gold standard, with everyone else eventually following, and the great rise in Credit (read debt) took place for the G-7 countries.

The Canadian dollar / loonie experienced a nice rally in April too, which was ½- generated by weak U.S. data, and the other ½-generated by the brighter outlook by the Bank of Canada (BOC) early in April allowed the loonie to have the best one-month performance VS the dollar in 6 years!

The problem with that brighter outlook, is that it was all based on a weaker loonie, which was helping exports. It was a real conundrum for BOC Gov Poloz. If he talks glowingly about the economy, which makes him look good, the loonie rallies, which is NOT what he wants to see happen. This Friday, as with most Fridays when the U.S. has a Jobs Jamboree Canada also prints their jobs report for the previous month.

The thing I want to point out here is something I’ve told you ever since Poloz became the Gov of the BOC. And that is he is from the Trade side of the Gov’t. and those people are born and raised to complain about currency strength. So, I don’t think the loonie has much chance to add to its 5% gain in April, for Poloz will not allow that to happen.

Well, I just had to stop and sing along with Leon Russell, and his song: Back to the Island. And watch the sun go down. Hear the sea roll in.. But I’ll be thinking of you.. And how it might have been.

Ok. I’m back now. And it appears that the only currencies gaining VS the dollar today are Gold and Silver. And I wouldn’t exactly call Gold’s move a strong move higher. Zerohedge.com ran a pretty interesting story on Friday, and included some really cool screen shots of trading in Gold. Here’s a snippet of the whole piece. “Much to our dismay, overnight we learned that while the CFTC continues to be very, very confused and challenged by all those lobby payments by the world’s “liquidity providing” HFTs and ignores all documented evidence of manipulation, the Chicago Mercantile Exchange – owner of the futures exchange where the bulk of modern manipulation takes place – did read this evidence of manipulation, and decided to immediately take action, suspending two traders for placing the manipulative “spoofing and layering” trades profiled here three days ago which were virtually identical to the ones that got Navinder Singh Sarao into headlines around the world last week. Except, of course, the asset class manipulated was gold. And, perhaps what’s far worse, the manipulation sent the price of gold briefly higher.”

You should read the whole article here. that is as long as you believe in the price manipulation of Gold & Silver. I know that some of you don’t believe it, so You can go ahead move along for these are not the droids you’re looking for. http://www.zerohedge.com/news/2015-05-01/gold-manipulator-busted-after-zero-hedge-report-hft-gold-spoofing

The U.S. Data Cupboard on Friday had the aforementioned ISM, but it also had some very disturbing Construction Spending data from APRIL! So new data that goes toward the 2nd QTR GDP. April Construction Spending fell -.6% , and get this. The Atlanta Fed cut their 2nd QTR GDP outlook to .8%, after seeing the color of the Construction Spending data. This was the worst print here since 2009, when the Fed began QE1. In fact 7 of the last 10 months this data has missed expectations.

Today, we have Factory Orders For March. And quite frankly, now that the Fed has put all their eggs into the basket of the next two month’s data I don’t care about March prints. I will be keeping score on April and May data. and so far, we had a no gain ISM and a disastrous Construction Spending in April.

To Recap. It appears that April’s currency rally has run into a road block for May, as the dollar is rebounding against all currencies this morning. Traders are buying into the Fed’s call that the bad 1st QTR Data was “Transitory” and will be better in the 2nd QTR, and trading the dollar accordingly. I wonder what will happen when they wake up and smell the fact that the 2nd QTR Data isn’t “better”. The U.K. election is this week, still no real clear winner or party. the WSJ is reporting that the IMF is about to say China’s currency is fair valued. And Gold & Silver have small gains VS the dollar today

Then There Was This. I thought you might like to see how the U.S. economy is looked at by someone outside of the U.S. The U.K. Telegraph. You can read the whole article here: but I have a couple of snippets that tell the story first. http://www.telegraph.co.uk/finance/economics/11578200/US-jobs-relapse-raises-fresh-doubts-on-Fed-tightening.html

“A key indicator of manufacturing jobs in the US has dropped to its lowest level since the financial crisis as industry remains stuck in the doldrums, dashing hopes for a swift rebound after the economy ground to a halt in the first quarter.

The surprisingly weak data greatly reduce any likelihood the US Federal Reserve will raise rates in June for the first time in eight years, once again putting off the long-feared turning point in the global monetary cycle and perhaps offering another reprieve for dollar debtors across the world.

The closely watched index of the Institute for Supply Management (ISM) remained anemic in April, confirming fears that the strong US dollar and energy crash in the once-booming shale states are taking a serious toll.

The employment component dropped sharply to 48.3, below the “boom-bust line” of 50 and the lowest in almost six years. The relapse is likely to set off alarm bells at the Fed, where chairman Janet Yellen pays very close attention to the labor market.”

Chuck again. See? It’s not just me that sees these things. But why doesn’t the Fed see them? Only the shadow knows, I guess.

Currencies today 5/4/15. American Style: A$ .7830, kiwi .7525, C$ .8240, euro 1.1135, sterling 1.5095, Swiss $1.0685, . European Style: rand 12.0590, krone 7.5980, SEK 8.3805, forint 272.45, zloty 3.6305, koruna 24.5690, RUB 51.87, yen 120.25, sing 1.3330, HKD 7.7530, INR 63.42, China 6.1165, pesos 15.56, BRL 3.0770, Dollar Index 95.53, Oil $59.43, 10-year 2.13%, Silver 16.29, Platinum $1,132.63, Palladium $775.75, and Gold. $1,182.21

That’s It For today. Well that was an exciting Kentucky Derby race on Saturday wasn’t it? Yes, the favorite horse won, that’s why he was the favorite! My wife came back home on Saturday, and the first thing she said upon arriving at the house was that the grass hadn’t been cut. I tried to explain to her that I had been very sick all week, but she was having none of those excuses! See how badly she treats me? HAHAHAHA! Well, Tomorrow is the Cinco de Mayo Celebration, that I think gets more attention here in the U.S. than in Mexico. Tomorrow I’ll tell you about the famous email I received years ago, on Cinco de Mayo. Well, my beloved Cardinals are off to their best start since 1944 (they won the World Series that year!) And now the upstart, kids from Chicago come to town. Appropriately named the Cubs, this team is a collection of high draft choices and trades, to form a good young team. Woke up this morning with a mouth full of blood, from the tumor in my jaw. It’s shrinking again, which is what causes the bleeding. UGH! But I’m fine now, had my breakfast, and I’m good to go! So, now you have to promise that you’ll go out and make this a Marvelous Monday!

Chuck Butler
Managing Director
EverBank Global Markets
Editor of A Pfennig For Your Thoughts
1-800-926-4922
https://www.everbank.com