It’s An Interest Rate Story.

* Currencies are mixed again today.
* Markets think they have Draghi all figured out.
* Are fundamentals making a comeback?
* More weak data from the U.S..

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

Good day. And a Wonderful Wednesday to you! Well, James Taylor greets me this morning with the song: You’ve Got A Friend. Carol King also recorded that song back in the day, and of course she wrote the song. I was booting up the laptop while the song was playing, and I was sitting here listening to it, and when James said, “you’ve got a friend” I thought. Yes, I wish I had a friend that would get up and write the letter this morning, for I’m tired, and need more sleep! HAHAHAHAHA! Well, I do have such a friend. And it’s me! HA!

Well. I told you yesterday that European Central Bank (ECB) President, Mario Draghi, was going to be giving a speech later in the day, and the markets were anticipating him talking about the need for additional stimulus.. Well, he didn’t disappoint them. Draghi, didn’t mention “any need to add to stimulus”, but what he did say, gave the markets the green light to sell the euro, which it started doing at that time and are still doing this morning! Let’s listen in to exactly what Draghi did say. stop me if you’ve heard this before! HA!

“The ECB will consider increasing stimulus at its December meeting, and that the bank was willing and able to act by using all the instruments available within its mandate if warranted in order to maintain an appropriate degree of monetary accommodation.”

This sounds like the same speech he’s given quite a few times in the past. He sure does like to talk about his “tools” doesn’t he? Basically, to me, I don’t think he said anything that’s earth shattering, or worthy of the amount of selling the euro is seeing. But. I will admit that the markets have drawn a line in the sand on this whole scenario, and decided that it’s going to be an “interest rate story”. In the Blue corner, we have the U.S. Fed who is talking about hike rates in December, and in the Red corner we have the ECB who is talking about additional stimulus in December.

And frankly, I guess I have to say that I’m all for an “interest rate story”, because at least that brings us back to trading on fundamentals. But, I just can’t past the fact that I still believe that the Fed’s talk about a rate hike in December is nothing but window dressing. curb appeal. and a BIG FARCE! And we’re 5 weeks away from the Fed’s December meeting! Which could mean that we have 5 weeks of all this euro selling. No wonder investment giants like Stan Druckenmiller is making claims that he sees the euro falling to $1.05 by year end, due to the tale of two Central Banks’ moves.

The Indian rupee has been a real drag for currency appreciation in the past month. And in fact year-to-date the rupee is down -3.73%.. Not earth shattering, and current interest rates may offset such downward moves in the currency, so not all is potentially, lost as we continue to wait for PM Modi to wave his magic wand over the economy and unlock the economy on the world. I did see something this morning that I liked. And once again it was the Reserve Bank of India (RBI) Gov Rajan, who said it, and not PM Modi. Longtime readers will recall me talking glowingly about Rajan when he was first brought in to run the RBI a couple of years ago, and he hit the ground running helping the rupee to a very nice appreciation within a year. But then the PM Modi got all the headlines and spotlight, and Rajan stepped back. But today, he sounds like he’s back, and tired of watching the rupee slip.

So, for the record. Upon taking the reins of the RBI, Rajan has boosted foreign exchange reserves to record levels and has opened the Gov’t Bond market. I loved it when he warned Indian firms against borrowing in dollars, likening it to “Russian roulette”! Well, last night, Rajan got tired of watching the rupee play on the slip and slide, and told the markets that, “I think that the rupee will become more attractive as an investment currency.” Now, that’s the kind of stuff I love hearing from Central Bankers! Talk up your currency, darn it, your country’s currency is the “stock of your country”, so why would you take every opportunity to diss it, like most Central Bankers are doing these days. My faith in Rajan and the Indian rupee has been restored. Because he talked up the currency, the way “real Central Bankers” used to! Oh! And I almost forgot this important piece of the whole discussion. The rupee is on the rally tracks this morning!

Well, we’re seeing my two faves from the S Pacific, Aussie dollars (A$) and N. Zealand dollars / kiwi, move in opposite directions this morning. We normally see these two move in tandem, for if one is moving in one direction the other trades in sympathy with the other. But not today, so I had to see what’s up here. So, first, let’s take the currency that’s moving downward this morning, and that’s the New Zealand dollar / kiwi. New Zealand 3rd QTR Employment fell -0.4%, when it was expected to rise 0.4%… YIKES! So, you know what this did, right? It put the thought of a rate cut in the heads of traders, and kiwi has gotten sold on that thought.

The Aussie dollar (A$) is moving in the opposite direction of kiwi, so let’s take a look at what’s going on there! Well, that is. The A$ “was” moving in the opposite direction of kiwi, when I turned on the currency screens this morning, the A$ was up 1/4-cent, and kiwi was down 1/4-cent, but as I spend so much time talking about India, the A$ has slipped to flat on the day, which is sad because they did have a very strong Retail Sales report for September, which saw a gain of 0.4% VS August, and the most important thing to me. The Aussie Trade Deficit narrowed in September to A$ 2.3 Billion, VS the previous month’s A$ 3 Billion deficit! But you know, traders these days, they see that and say that domestic demand is down, and that caused the drop. Currency traders are like Eeyore.

The price of Oil jumped higher again overnight, this time skipping the $47 handle and stopping at $48 and change.. The Russian ruble and Brazilian real seem to be the only petrol currency benefitting from the jump in the Oil price. UGH! I don’t get it. All the petrol currencies get whacked when the price of Oil drops, and then can’t all rally when the price rises? Come on, traders!

And yesterday, Gold was flat in the morning, but as the day went along, it got whacked and whacked good once again. I guess it was time for its “weekly whacking” . I’m tired of talking about how these whackings make no sense to me, given all the physical demand, so I’m going to take a break on that talk and instead talk about something that Gold research guru, Koos Jansen mentioned in his latest briefing that can be found on the website: Let’s listen in to Koos this morning.

“Many central banks around the world are aware the international monetary system is moving away from the US dollar and that the role of gold will (officially) be much greater in the future. In this development central banks benefit from a smooth and slow transition to a new system, as sudden shocks will bring the global economy in a free fall and more time provides better preparations. Central bankers prefer slow and attentive change. Signs of the slow development towards gold by central banks can be seen across several continents. In Europe slowly more and more countries are repatriating their gold from the UK (Bank Of England) and the US (Federal Reserve Bank Of New York). Certainly not all their gold but weighed amounts and in the case of Germany and Austria the gold is repatriated over several years. If all European countries would repatriate all their gold at once it would cause a panic in financial markets. In the East, Russia and China are increasing their gold reserves every single month by relative small amounts, respecting the slow development towards gold. Asian central bankers differ from their European colleagues because they verbally acknowledge the role of gold in finance.” – Koos Jansen

Well, today is the day we get the so-called “clues” to the Jobs Jamboree. The ADP is forecasting at 180,000 increase in jobs for the U.S. in Rocktober. The U.S. Data Cupboard will also have the Trade Deficit for September.. and the Markit Services PMI. But all eyes will be on the ADP report, as everyone wants to get a head start on the BLS report that will print on Friday. Remember, the BLS report consists of a couple of surveys, and then sprinkle in some hedonic adjustments.

Well, the U.S. Data Cupboard yesterday was good and bad, as I expected.. but the good has to be tempered somewhat, due to the financing that has taken over that sector. So, first the bad.. U.S. Factory Orders for September fell-1.0%, thus another negative number, and. The August previous print of -1.7% was revised downward to -2.1%, so from the looks of that, we certainly should expect a downward revision to the negative -1.0% print in September. This negative number begins the 3rd QTR in the hole. And has caused the tracking of 3rd QTR GDP to drop from 1.5% to 1.4%… Now you see why there are multiple revisions in the next 60 days to the 3rd QTR GDP, as there are still data reports from September to factor in. Sure they use a “guesstimate” of the number, but in the case of Factory Orders, that guesstimate was for a number that was better than the negative -1.0%…

And now the good. Well, here in the U.S. we sure do like buying new cars, eh? Vehicle Sales were through the roof in Rocktober, just falling short of the record set in September of 18.1 Million units sold, and printing 18 Million for Rocktober. But remember me telling you about the changes in financing that are going on for cars? That the loan terms are going out to 84 months and so on. I just don’t see this as a good thing, do you? Sure, take on the 84 month loan now, and worry about whether the car will still be worth that payment in 7 years! YIKES! But, the cars are leaving the show rooms before they can sit there for too long, and so there’s a sector that’s working, but once again, doesn’t that show how uneven the economy is?

And before I go on. Well, I came across another sign that the economy is beginning to show signs of going backwards.. The Treasury Daily data reported that receipts did not meet expectations and translate to a $132 Billion monthly budget deficit. And will most definitely throw a spanner in the works at the CBO (congressional budget office) who forecast a $414 Billion annualized Budget Deficit this year. I saw hogwash to that number! It’ll be worse or I’ll eat a Brussel sprout! The old saying was or I’ll eat my hat, so I sat here trying to think of something that would taste like a hat, and I immediately thought of a Brussel sprout. I know, they’re good for you, but to me I would rather not, thank you! Our old colleague, John Kaupisch, used to tell me that he had a recipe for Brussel sprouts, he said you wrap them in bacon. Well, duh! In cooking, bacon is one of the 4 B’s that make all things taste better. You don’t know them? Bacon, Butter, Beer, and. Better not forget the cheese! HAHAHAHAHA!

Currencies today 11/4/15.American Style: A$ .7190, kiwi .6645, C$ .7655, euro 1.0935, sterling 1.5415, Swiss $1.0110, . European Style: rand 13.7850, krone 8.5220, SEK 8.5575, forint 288.05, zloty 3.8740, koruna 24.7485, RUB 62.52, yen 121.15, sing 1.3975, HKD 7.7500, INR 65.48, China 6.3343, pesos 16.41, BRL 3.7590, Dollar Index 97.36, Oil $48.02, 10-year 2.21%, Silver $15.27, Platinum $965.20, Palladium $649.58, and Gold. $1,118.19

That’s it for today. Most days I try to remember to look at “what happened today in history” before I start writing, and today I wish I hadn’t. For it reminded me that today in 1979, was hen the American Embassy was stormed by “students” and Americans were taken hostage. That was a sad and bad day for the U.S. and then carried on and on. UGH! I dislike even talking about it, but it is a day in our history. Didn’t you love that the media made the terrorists out to be “students”? OK, Chuck leave this alone. Our Blues good home stand ended on a sour note, with a 3-0 loss last night. Van Morrison is playing his great song: Moondance on the iPod right now.. Well, that got my mind off of 1979. of course not all of 1979 was bad, for it was the birth year of my darling daughter Dawn. Our first child, and she was this darling little girl, who loved to sing along with me, laugh and giggle with my funny stories, and grow up to be a beautiful young lady. Little Delaney Grace is so much like her mom it’s scary. Well, once again, we’ve come to that point in the morning when it’s time to button this up and send it on its way. But first I want to make sure that you go out and make this a Wonderful Wednesday for you!

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