It’s A Jobs Jamboree Friday!

* RBA MPS waters down rate cut talk.
* Challenger jobs cuts soar! .
* German IP disappoints.
* Chuck talks about the IMF decision.

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

Good day. And a Happy Friday to one and all! What a bad night’s sleep I had last night! I woke up in the middle of the night, soaked from head to toe, had to change clothes, and find a new place to sleep. I guess I was experiencing a fever, but that was really strange in that I had no signs of that when I went to bed. UGH! Alrighty then. Today’s a Jobs Jamboree Friday, and this one carries a heavier load of significance to it than others, so we have that going for us. And I have some thoughts on China / IMF, and the RBA surprised the markets last night, but not me! All this and more in today’s Pfennig. Are you ready? Good! Let’s go!

Before we get started, I have this question for you. Have you ever heard the song: Summertime by Billy Stewart? I like to drag that one out every summer, and turn the volume up! OK, had to get that off my chest, because that song greeted me this morning!

Well, let’s talk about the Reserve Bank of Australia (RBA) printed their Quarterly Monetary Policy Statement, and much to the surprise of the markets, the RBA and their Gov. Stevens, pretty much threw cold water on the markets’ insistence that interest rates in Australia would drop further this year. You know me, I just keep saying that the Aussie economy doesn’t appear to me to be in need of additional rate cuts, but that’s just little old me, I’m no hedge fund manager, or head currency trader at JP Morgan or Goldman Sachs! Of course I would love to have the time and the ability to go back in time and keep score on who was right and who was wrong between me and those “BIG BOYS”! But who’s counting? I’ll have more on being right and wrong later, but for now let’s stick to the RBA, Chuck!

So, the Aussie dollar (A$) is the best performer overnight after seeing the color of the MPS (monetary policy statement) but. being the best performer on a night before the U.S. Jobs Jamboree that has most currencies swimming close to the dock, isn’t like saying that the A$ is soaring! It’s just the best performer overnight, and leave it at that! Getting back to the MPS and the RBA, it was interesting to see them be more positive about the economy. For once, a Central Bank (not counting the Fed, who sees things with rose colored glasses) that talks nicely about their economy, thus risking currency strength. What are they thinking? That could ruin their goal of introducing inflation into the economy while promoting growth! HA!

On a sidebar here, I would have to say that in reality, the Central Banks around the world have all failed miserably at their goal of introducing inflation into their economies, using the tools that have ranged from zero interest rates, to Quantitative Easing, to stimulus, and all points in-between! That’s my thought and I’m not changing it!

So, the currencies are pretty much flat this morning, but up a bit if you really look closely. I don’t think this trading is telling us anything though, other than traders are not going to go pushing the envelope here with the Jobs Jamboree a couple of hours away. As I said above, this month’s Jobs Jamboree holds more significance than previous months, in that, the traders have basically pinned their colors to the mast of: A strong jobs report seals the rate hike for September. Traders, investors, hedge funds, institutions, etc. have all basically gone all-in on a strong jobs report. But what happens if the Jobs report for July disappoints? So. that’s where I’m going this morning, I’m going to go with a disappointing report. Hey! Somebody has to be on the other side of the fence, and right now, there’s no one, but me!

Well, I got over my near heart attack yesterday when I heard about the IMF’s delaying their decision on adding the Chinese renminbi to their basket of reserve currencies that make up their Special Drawing Rights (SDR’s). I settled down after talking to the Big Boss, Frank Trotter. Now I don’t know if he used Jedi Mind Tricks or not, but when I finished talking to him, I felt better, for he made me realize that I gave several presentations a few years ago, titled: What may be evident, might not be imminent. And that’s what’s going on here folks. Yes, it’s quite evident to me and quite a few other observers, that the IMF will add the renminbi to their basket, but that decision appears not to be imminent.

And here’s the reason why I think the IMF delayed the decision.

I think it all came down to whether the renminbi floated or was kept managed.
The Chinese probably wanted to continue managing it for a while longer, and the IMF said, OK, if you want to keep managing it that’s fine, come back when you’re ready to float the currency.

You see, the renminbi is pegged to a basket of currencies, that basket has never been announced, but most observers, including me, believe that the basket consists of the other reserve currencies, so , if the renminbi were to be added as is, what good would that do? Not much. the currency needs to be floating when added, so as to diversify the basket of reserve currencies in the SDR’s.

Now yesterday, I talked about how I believed the float for the renminbi was coming and we wouldn’t have to wait too long. So that plays well with this whole new development. Who knows, maybe China asked the IMF to delay the decision so that China can get their ducks in a row for a floating currency.. We might never know, but that’s about how I see it all playing out. So forgive me for putting so much into the IMF making this decision this October. The good news is that the IMF is going to revisit this next year, and not wait until 2020.

So, the dollar strength might remain with us a bit longer than I suspected. I thought this autumn would be the perfect storm to upset the dollar’s apple cart. We had the IMF decision in October, we had the Fed, in my opinion, pushing the rate hike out further in September, and we had the economy slowing and showing no growth to speak of, as the leading contenders to upsetting the dollar’s applecart. We still have the slowing economy, and the Fed’s rate decision in September that could do some upsetting of the dollar’s applecart, but it won’t be the perfect storm that the IMF decision would have made this. So. again, it’s all evident, just not imminent. yet.

Another thought going through the markets right now is that the IMF made this decision, ahead of time I might add, to diffuse all the talk and hype that was beginning to build that centered on China’s renminbi being added to SDR’s. Maybe, that’s what they did. And then we must not forget that that largest voting member of the IMF is the U.S. and that’s all I’m going to say about that!

Speaking of being wrong about the IMF decision. I take that stuff with much difficulty, folks, but I don’t let it bring me down, it’s only castles burning, just find someone who’s turning, and you will come around. You see, if I did let it bring me down for too long, I would not continue to go out on limbs and say things like: “The Fed is not going to hike rates in 2015, and if they do, it will be so small and only to save face with the markets and media” Now regular readers know that I said that last year, when everyone was pointing to March. Then everyone was pointing to June. And now everyone is pointing to September. But, riddle me this Batman, what’s changed now VS March that would lead the Fed to hike rates now instead of then? Nothing, absolutely nothing! Key data prints are still either missing their targets, or printing negative, except housing and labor, and one is a direct result of low interest rates that are seen to be going higher, and the other one is a b
unch of dookie folks. We know it, and I’m sure the Fed members see it too.

So. I was reading one of my new fave writers: Jared Dillian, who writes the 10th Man letter for Mauldin Economics, ( yesterday, and he was addressing this being wrong about something too. Here’s his take. “And this is sort of the game that the newsletter writers play, too-many of them try not to say anything falsifiable, because God forbid someone could go back on the Internet and point to something where you were wrong. And if you are wrong, there is shame associated with that.

So I am saying on the Internet that I do not think there’s going to be a rate hike, and I might be proven wrong.

I’m a trader at heart. You win some, you lose some.”

Right on Jared! Ahhh, Dionne Warwick is singing her song: Walk On By on the iPod, and this song always mellows me out, and so now I don’t feel the need to talk about when I’m wrong, like on the IMF decision.

OK. enough of that! Well, yesterday Germany printed a very strong Factory Orders number, and unfortunately, Germany couldn’t keep the good times rolling, as they printed a disappointing Industrial Production number this morning. 2nd QTR Industrial Production fell -1.4% in Germany. the 1st QTR IP was revised upward by 0.2% but that didn’t help the 2nd QTR number. The euro is flat to looking a little weaker, but did rally nicely yesterday on the strong Factory Orders number and regained the 1.09 figure.

So, the U.S. Data Cupboard is dominated today with the U.S. Jobs Jamboree. I’ve told you how I’ve become so dissolutioned with the BLS jobs data each month, that I’ve decided to not get involved in the hype, and prefer as I’ve always done with following the Avg. Hourly Earnings and Avg. Weekly Hours Worked, and the Labor Force Participation Rate. But for those of us not enamored with the Jobs Jamboree, there will also be a print of Consumer Credit (read debt) for June this morning. Look for this number to have increased from $16 Billion to $17 Billion.

Well, Gold finally saw some buying yesterday, and drove the price higher by a small amount, and the same is going on this morning. I saw a report yesterday that said that Gold could fall below $1,000 on a strong U.S. Jobs report. Well, it’s going in the opposite direction right now, so I wouldn’t get too upset with the report, people have to write about something, and sometimes they decide to write about things they have. no wait, I don’t need to go there!

In addition, I saw an email that the GATA people sent out yesterday that was pretty interesting. Here’s the meat of the email. “A Bank of England policy study written in 1988 describes gold as “the ultimate store of value and medium of exchange” because it carries no counterparty risk but cautions against increasing the United Kingdom’s gold reserves because doing so might be construed as a negative comment on the U.S. dollar and thus would risk giving “great offense to the United States.”

Yes, that’s right. this isn’t something that the GATA people made up. They pulled it from the Bank of England’s records!

To recap. It’s a Jobs Jamboree Friday, and this one has more significance than previous prints because the markets have tied this report to whether or not they’ll see a rate hike in Sept. I say hogwash, but it’s what the markets are thinking right now, and getting in their way with an argument, would be like stepping in front of a moving bus! The RBA’s MPS threw cold water further rate cuts in Australia. But that’s not stopping the markets from calling for two more rate cuts this year. Nevertheless the A$ was the best performer overnight on the MPS. Chuck goes deeper into the IMF’s decision regarding China, and then goes on to talk about being wrong.

For What It’s Worth. I found this on yesterday, but had forgotten all about it, until I opened up Ed Steer’s letter this morning, to see that he had caught it and put it on his letter, so thanks Ed for the reminder! Here are a couple of snippets, and as usual the entire story can be found here:

“While we await for the BLS to report another seasonally adjusted Initial Claims report which will be near multi-decade lows, a far more disturbing report was released moments ago by outplacement consultancy Challenger Gray, which has done a far better job of compiling true layoff data, and which reported that in July there was a whopping 105,696, up 136% from the 44,842 job cuts in June, and the highest in nearly four years, or since September 2011, which the last time there were more than more than 100,000 layoffs.

Worse, the July surge brings the year-to-date job cut total to 393,368, which is 34 percent higher than the 292,921 cuts announced in the first seven months of 2014. This represents the highest seven-month total since 2009, when 978,048 job cuts were announced amid the worst recession since the Great Depression.

According to Challenger, more than half of the July job cuts were the result of massive troop and civilian workforce reductions announced by the United States Army. The cutbacks will eliminate 57,000 from government payrolls over the next two years.”

Chuck again. I recall a few years ago, when the Big Boss, Frank Trotter, would talk about the labor gains in the U.S. and point out how that the number one employer had been the military and wondered out loud what would happen when that turned around. Well, I guess we don’t have to wonder any longer.

And before we go to the currency roundup, I have to send out a huge apology to you dear readers, for a fat fingered faux pas I had with the price on the Canadian dollar yesterday. Some keen eyed readers brought it my attention, nicely I might add, so thank you!

Currencies today 8/7/15. American Style: A$ .7385, kiwi .6570, C$ .7630, euro 1.0930, sterling 1.5515, Swiss $1.0175, . European Style: rand 12.7105, krone 8.2805, SEK 8.7660, forint 283.90, zloty 3.8250, koruna 24.7280, RUB 64.12, yen 124.75, sing 1.3835, HKD 7.7520, INR 63.83, China 6.1174, pesos 16.30, BRL 3.5340, Dollar Index 97.82, Oil $44.78, 10-year 2.23%, Silver $14.74, Platinum $953.90, Palladium $607.20, and Gold. $1,090.10

That’s it for today. The American Breed are singing their song: Bend Me, Shape Me on the iPod and I have to say that it’s very apropos given the gyrations I went through last night! Well, my beloved Cardinals are still hanging tough, not scoring many runs, but winning games, and now head to Milwaukee for a weekend series with the Brewers, who have been much better recently. One night we have a house full of people for Delaney Grace’s 8th birthday party, and the next night, I was alone. Oh well, it was much more quiet that’s for sure! It’s getting light outside, but it appears to be a cloudy morning. I would prefer seeing a sunrise, but so be it! The sun will come out later, according to the weather person last night. It has been the strangest summer weather I can recall, here in the St. Louis area. Well, the NFL training camps have begun, and so too have the College Football teams camps. It won’t be long now and the Fantasy Football Drafts will be taking place (mine is next¬† Friday!) And then we’ll have baseball, pro and college football going at the same time. it doesn’t get much better than that for me! Well, I have to get going here. I hope you have a Fantastico Friday and a Wonderful Weekend!

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