It’s All About The ECB Today!

Rocktober 26, 2017

* Norges & Riksbank keep rates unchanged
* India gets caught red handed, intervening!
* Gold gains a whopping 90-cents on the day!

Good day… And a Tub Thumpin’ Thursday to you! Whew! what a World Series Game 2 last night! I tried to stay awake for the whole game, but folded like a lawn chair after the 10th inning, only to see that it was won by the Astros in the 11th, when I checked the score this morning. Home Runs were flying out of the park last night! Man, I’ve developed a real irritating cough, that is driving me crazy! Oh well, Chicago greets me this morning with their song: Old Days…

Well today is the day the European Central Bank (ECB) meets and gives us the details of their plans to taper their bond purchasing program. The meeting is going on as I write.. When I first woke up this morning, I thought, that I should just go back to sleep and then get up to write the Pfennig after the ECB’s meeting. so I could talk about what they said.. And then I thought, nah… better to have the day to go through the ECB’s plans with a fine tooth comb, than to give a knee jerk reaction to it… So, here I am.. Aren’t you glad? HA!

Euro traders aren’t waiting for the ECB, as they are anticipating a good discussion after the ECB meeting, and have pushed the euro back above 1.18 this morning… The euro and sterling are about the only currencies showing some life this morning though. Sterling is getting some love after a better than expected 3rd QTR Preliminary GDP report showed a 0.4% gain for the quarter. I know, I know, that’s not a figure that should excite Pee Wee Herman, but.. when you are comparting it to negative numbers that printed previously, then you see the reason for the giddiness of traders this morning.

In my weekly letter this week for the Dow Theory Letters (www.dowtheoryletters.com) I talk about something that hasn’t happened since 1991… And in researching things that happened in in 1991, I came across the news article that highlighted Pee Wee Herman’s downfall… that was a real shame, because my son Andrew and I loved Pee Wee Herman’s show. Andrew was just 9 at the time, and I wasn’t much older, HA! That was 26 years ago folks! Crazy how time flies, eh? And you don’t even have to be having fun for it to fly by!

OK… How about that BIG upward move by Gold yesterday? What? You didn’t see that? It was a whopping 90-cents! HA! Gold has really been caught in all the rate hike rhetoric lately, and yesterday was no different, as the price gyrated up and down all day. There were 360,000 contracts traded yesterday! That’s crazy folks! But, it is what it is, and we are left to deal with the end result… What on earth are the paper short Gold trades attempting to do? Well, that’s a good question, as it just seems that they could be spending their time doing more productive things than keeping a lid on the price of Gold, right?

In my humble opinion it’s Government directive that has these paper trades keeping the pedal to the metal! And that’s all I’m going to say about that today… There’s no Government directive to keep a lid on the price of Gold in Russia or China, as they keep backing up the truck to buy more physical Gold..

Speaking of China… Premier XI was confirmed as the leader for another 5 years, and the thing I think needs to be pointed out is that he did NOT name a successor to follow him… It’s traditional when a leader sees his next 5 years to be the end, for him to name a successor, but Xi didn’t do that, which is a signal to me that he plans on remaining in power for many years to come…

That could be a good thing or bad thing… Right now I think it’s a good thing because he has tons of reforms he wants to implement, and having stable leadership is important.
I haven’t talked about India or the rupee for some time, and thought that today would be as good a day as any…

I don’t know if you’ve been watching the rupee’s performances lately, but they’ve been in a very tight range, and watching this, I had a feeling that some intervention was going on.. And sure enough it was revealed last week by the U.S. Fed that they were watching the Reserve Bank of India’s (RBI) currency moves.. In other words, they are putting the RBI and India on notice that they could be named a currency manipulator should they keep up the blatant intervention.. So, the RBI is going to have to become a little more discreet about their intervention…

The RBI and the Indian Gov’t is concerned that the rupee could get overvalued very quickly with their intervention, which involves selling rupee and buying dollars. I would have to call this blatant currency manipulation! So, go ahead Fed, put them down on the list, and maybe the RBI will stop this insanity…

Elsewhere, Norway’s Norges Bank left rates unchanged this morning, saying that, “New information does not provide a basis for changing the Bank’s assessment of growth in the Norwegian economy. The improvement in the labor market appears to be continuing. Inflation has been slightly lower than projected, while the … exchange rate is somewhat weaker than projected.” I would have liked for the Norges Bank to sound a little more upbeat, but I guess until the price of Oil goes higher, if it does, they have to remain cautious..

And Sweden’s Riksbank also left rates unchanged this morning, and told reporters that they did not plan on hiking rates until mid-2018… So, I guess we should just ignore all Riksbank meetings until then, eh? Oh, by the way, I don’t think the world’s financial system is going to allow them to hike rates in mid-2018, because in my opinion, it will be a real mess by then!

The U.S. Data Cupboard had some very strong economic data reports yesterday, with Durable and Capital Good Orders both beating expectations, and New Home Sales soaring much higher then the expectations.. I tweeted a note yesterday evening the same thing I said yesterday in the Pfennig and that is that like I always say, one swallow doesn’t make a summer and one strong econ. print doesn’t make a trend..

Today, we’ll see the color of the Sept. Trade Deficit, which should have widened during the month, as the dollar rebounded in September.. Look for the deficit to be around $64 Billion up from August’s $62.9 Billion.

To recap… It’s all about the ECB today, and what they tell us about their plans to taper their bond buying program.. If the markets like it, the euro will rally… If the ECB disappoint them the euro will get sold.. I’ll have all the details tomorrow.. Both the Norges Bank and Riksbank left rates unchanged this morning, as expected, but Chuck would have liked to have seen more optimism from the Norges Bank, and for the Riksbank to clam up! Gold gained a whopping 90-cents yesterday… How about that?

For What It’s Worth… I came across an article by Caroline Baum last night, and stopped me in my tracks! Longtime reads might recall me quoting Caroline Baum over and over again back in the day, as she made so much sense, but then she disappeared.. But there she was last night, and so I picked her article as the FWIW story today. It’s about how the Fed needs to stop using their antiquated models and listen more to what the markets are telling them… And it can be found here: http://www.marketwatch.com/story/the-fed-ignores-the-most-relevant-evidence-2017-10-26

Or, here’s your snippet: “Perhaps you have heard that the Phillips Curve, a model that purports to describe the inverse relationship between unemployment and inflation, is — take your pick — dead, dying or dormant. In other words, it isn’t working.

The 1970s witnessed a period of “stagflation:” high unemployment and high inflation. The 1990s featured a peaceful coexistence of low unemployment and low inflation, a condition that persists to this day, much to the consternation of the Federal Reserve.

Maybe it’s time to look elsewhere for “forward guidance”: not the verbal kind, by which the Fed aims to align expectations with its prescribed path for the federal funds rate; but the kind that provides useful, real-time information on the stance of monetary policy and its implications for the business cycle.

Travel with me back to the period between 1986 and 1990, when Manuel Johnson was Federal Reserve vice chairman. He and his chief economist, Robert Keleher, introduced the board to the idea that auction-market indicators could be useful guides in the conduct of monetary policy.”

Chuck again… This article plays well with my call many years ago that the economy would be better if the Fed didn’t set rates, but instead the markets set the interest rates.. All the bond folks at a former place of employment didn’t agree with me, but I didn’t care I said it any way!

Currencies today 10/26/17… American Style: A$ .7715, kiwi .6880, C$ .7815, euro 1.1815, sterling 1.3225, Swiss $.99, … European Style: Rand 14.19, krone 8.04, SEK 8.2330, forint 263.05, koruna 21.6667, RUB 57.62, yen 113.61, sing 1.36, HKD 7.8011, INR 65.83, China 6.6503, peso 19.02, BRL 3.2403, Dollar Index 93.69, Oil $52.26, 10-year 2.42%, Silver $17.01, Platinum $924.06, Palladium $970.89, and Gold… $1,279.70

That’s it for today.. Another day in the books, as it didn’t seem like I would be able to answer the bell today, but did, and here we are at the finish line! Our Blues held on for a win last night. I was flipping the channels back and forth between the hockey game and baseball game… I know hockey just started and it’s a Loooooonnnnggggg season, and baseball is in the Championship round, but I love the Blues, and can’t just turn my back on them! I had a great lunch with my good friend, Ellie Williams yesterday. She too is a cancer survivor, so we understand each other very well! Kansas takes us to the finish line this morning with their song: Song For America.. And with that it’s time to go and send you on your way with hopes that you have a Tub Thumpin’ Thursday! Be Good To Yourself!

Chuck Butler
Creator & Editor of:
A Pfennig For Your Thoughts

Chuck Butler recently joined the Aden Research Group, a research center led by writers and market analysts Pamela and Mary Anne Aden. The Aden Research Group publishes three newsletters:
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