It’s All About The Triple-Witching Thursday!

* Bias to sell dollars exists..
* But trading ranges are tight.
* Australia’s 1st QTR GDP beats expectations!.
* Gold is knocking on $1,300’s door!


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

Good day. And a Wonderful Wednesday to you! The 13-run pools around the country were all broken and paid out with the 13-runs the Reds put on my beloved Cardinals last night. It got so ugly I turned it off to watch re-runs of The Big Bang Theory! I slept pretty good last night, but can’t seem to get the motor started this morning! UGH! It will eventually start and then everyone needs to watch out! HA! Pink Floyd greets me this morning with their song: The Fletcher Memorial Home. I bet there’s not a lot of people that have that one on their iPods!

Well, there’s not a lot going on in the currencies, the bias is to sell dollars, but the trading ranges are tight, as most traders are focusing on tomorrow’s triple-witching day, that I talked about yesterday. We did have a piece of data overseas last night that got the global growth currencies moving higher. And Gold! WOW! Well, when you look at Gold was held within the 1% limit that is has been allowed to gain in one day, but still, Gold is knocking on the door to $1,300, and if it takes 1% gains from here on out, I’ll be fine with that!

OK. Last night Australia printed their 1st QTR GDP, which the forecasters thought the print would be weaker than the 4th QTR’s 0.3%. But that was not to be, and the 1st QTR GDP print was bang on with the previous QTR’s 0.3%, and everyone in the S. Pacific breathed a sigh of relief, and then went to pushing both the Aussie dollar (A$) and kiwi higher. The A$ is back to trade well into the 75-cent handle, and kiwi breached the 72-cent handle overnight! These are initial moves to a data print that was better than expected. I don’t expect these initial moves to be a stepping stone to higher levels right away. Usually you see this initial reaction, and then a settling of the dust, before any further moves can be made either way. But I’m not unhappy with these moves!

It’s the Wednesday before the triple-witching Thursday tomorrow that will bring us the U.K. election, the Comey testimony, and the European Central Bank (ECB) meeting. And that’s where I’ll go now. The euro is inching toward the 1.13 level. Will it make it there by tomorrow? I doubt it, as the moves in the euro have been small so far, and tomorrow, the ECB meets, and I’m almost tempted to bet the farm that I don’t own, that ECB President Mario Draghi, spends an inordinate amount of time reminding the markets that the ECB is still a long way from meeting its mandate on inflation. Eurozone CPI is 1.4% at the last print, and 1.4% is not 2%, as far as my math skills go.

A couple of ECB meetings ago, I was thinking and hoping and wishing and praying that Draghi would announce when the ECB was going to begin removing the accommodation, like negative rates, but I was wrong, and got caught in the rush hour, fellows started to shower, you with love and affection! Oh, Chuck, can’t you ever just stick to being normal?

The price of Oil bumped up to trade over the $48 handle again in the past 24 hours. I believe this move in the price of Oil has come to us courtesy of the rift between Saudi Arabia and Qatar. You may recall me telling you earlier this week that a few Oil producing countries had severed ties with Qatar, claiming they harbored terrorists. But when Saudi Arabia joined the group severing ties with Qatar, Qatar balked and now there’s saber rattling going on between the two countries. I simply say, look, the pot is calling the kettle, black!

The Petrol Currencies have taken notice of the bump in the Oil price and are all on the rally tracks. The Russian ruble is the leader of the pack, vroom, vroom! And in Russia the Central Bank of Russia (CBR) will be meeting soon, and I fully expect them to cut rates again. After their last meeting and rate cut, I told you that I expected Russian internal rates to fall to 7.5% by year-end, which meant a few large rate cuts between now and then. I still believe all that, so look for a rate cut that has some meat to it, when the CBR meets on June 16th.

The ruble has shrugged off the previous interest rate cuts by the CBR, mostly because the price of Oil hasn’t collapsed again, but also don’t forget the net or real interest rates. In Russia, the current rate is 9.25% and inflation is 4.1%, that’s a real interest rate of 5.15% (again using my new math skills, I’m killing it today! HA!) Now compare that with the U.S. where real interest rates are negative. Yes, that’s right! The internal rate is 0.75% and inflation, using the PCE (personal consumption expenditures) is 1.78%… So that’s a negative rate here in the U.S. of -1.03%… Most people don’t know that the real interest rate in the U.S. is negative, but yet we point at the European countries that have implemented negative deposit rates and laugh at them. People that live in glass houses shouldn’t throw stones. I’m just saying.

OK, back to Gold because it’s the star performer of the past 24 hours! Gold gained $14.30 yesterday to close at $1,293.60. And Gold is up to $1,295 in the early morning trading, so like I said above, it’s knock, knock, knocking on $1,300’s door. Someone’s knocking at the door, do me a favor, open the door and let ’em in. The Triple-witching Thursday has really got Gold moving in the right direction, and then take the increased problems in the Middle East, and, the overall weakening of the U.S. economy, and you have the recipe for a potential Gold rally.

I really do think that $1,300 is a real psychological level for Gold.. And once it trades above it and stays there, then investors eyes will begin to open again, and see that Gold could be in the early stages of a run. And then everyone else will begin to chase the price higher and higher. That’s the scenario I see, but that’s just my opinion and I could be wrong.

The Yield in the 10-year Treasury has been moving back and forth this week between 2.11% and 2.17%. This morning the yield is 2.15%… I had someone ask me what that meant to have a yield so low in Gov’t bonds. I said, that the bond boys just didn’t see the economy growing like the Fed sees, and therefore they don’t think yields should be above this level. A quick look at the Treasury yield curve, tells me that the a 30-year Treasury bond only has a yield of 2.81%… That’s a pretty flat curve folks. And history tells us that when long bond yields fall below short bond yields, that the U.S. is ready to enter a recession.

The U.S. Data Cupboard is still searching for real economic data to print today, and if you ask me, I think today’s data qualifies, but most observers, traders, economists, etc. just shrug it off because we’ve become Comfortably Numb with debt numbers here in the U.S. But today’s data is the Consumer Credit (read debt) for April. the forecasters have April’s number printing less than March’s $16 Billion. I wonder if the forecasters forgot that Easter was in April this year? Oh well, whatever the number prints, it will still be too much debt!

Well, let’s see, when you are handed lemons, you make lemonade, or as one of my fave comedians says, “when you are handed lemons, grab the vodka”! HAHAHAHA! Ok, back to my lemonade, of which I do love to drink! Today didn’t have much in the way of news about the currencies etc. as everyone is focused on tomorrow, and while I didn’t have much in the way of things to talk about I still made lemonade today! How about that?

To recap. The bias to sell dollars is there, but the trading ranges are tight. The euro inches toward 1.13, and Gold is knocking on the door to $1,300. Which asset will get there first? Gold gained $14 yesterday, and the price of Oil bumped up above $48 again. Australia printed a better than expected 1st QTR GDP report, that sent both the A$ And kiwi to higher levels overnight. The markets are focused on the triple-witching Thursday tomorrow, so I guess we might as well be too!

For What It’s Worth. I came across this article as I was researching something else. It’s a Bloomberg article about why the writer thinks inflation is so low. And can be found by clicking here:

Or, here’s your snippet: “Central bankers and investors are grappling with a $100 trillion question: why consumer price inflation remains so low in most parts of the world even as economic growth quickens.

Compounding the riddle, question marks are now emerging over the one part of the global inflation picture that had been moving higher — producer prices. That’s because two engines of that turnaround — China’s resurgent factories and prospects for tax-cut fueled stimulus under President Donald Trump — are showing signs of fading.

That leaves the reflationary ball back in Trump’s court. The U.S. president has promised to plow ahead with hundreds of billions of dollars in spending on new road and bridges, funded by the public and private sectors, along with pledges for far reaching tax reforms.

What happens next in the U.S. has become critical.”

Chuck again. So, the Bloomberg writer believes that inflation doesn’t exist and China and the U.S. is to blame. Sure I get what he’s saying, but in reality, and again this is a whole different subject, but inflation isn’t just the CPI or PCE reading. Inflation is different for each individual, as I’ve explained before many times. Inflation can exist or not exist, depending on the individual’s spending habits. If the price of ballgame tickets have gone sky high, but one person doesn’t go to ballgames, then he doesn’t experience that inflation, but if someone like me does go, then he experiences inflation.. The same for college tuitions, health insurance and so on. don’t even begin to tell me there’s no inflation! Shoot Rudy, just look at the sizes of the boxes of cereal you buy. You’re paying the same as you did before, but the box looks smaller, and that’s because it is!

Currencies today 6/7/17. American Style: A$ .7556, kiwi .7203, C$ .7444, euro 1.1273, sterling 1.2919, Swiss $.9624, . European Style: rand 12.8260, krone 8.4455, SEK 8.6875, forint 273.65, zloty 3.7269, koruna 23.3660, RUB 56.68, yen 109.20, sing 1.3793, HKD 7.7941, INR 64.30, China 6.7967, peso 18.24, BRL 3.2901, Dollar Index 96.55, Oil $48.03, 10yr 2.15%, Silver $17.67, Platinum $959.40, Palladium $853.25, Gold $1,295, and SGE Gold. $1,296.08

That’s it for today. The sun is a ‘rising, most definitely. A new day is coming. Ahhh, a little Crystal Blue Persuasion this morning. Little Everett was here yesterday while his mom taught swim lessons in the pool, and he told me that he missed his Mimi (Kathy), and if I was in Florida with her, he would miss me too! I laughed and told him not worry, his Mimi was coming home soon, and I was here! I had to take my new personal laptop back to the store where I bought it because it locked up and wouldn’t work. They called me last night to tell me it was fixed, and to come get it. I shake my head in wonder about whether I bought a lemon or not. UGH! 10CC takes us to the finish line today with their song: The Things We Do For Love. Last week I totally forgot to mention that it was the 50th anniversary of the Beatles Sgt. Pepper’s Lonely Hearts Club Band album. 50 years! Oh my! I’m getting old! UGH! Alrighty then, I hope you go out and make this a Wonderful Wednesday. Be Good To Yourself!

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