It’s BREXIT Referendum Day!

* Currencies rally!.
* A HUGE voter turnout so far .
* Norges Bank leaves rates unchanged.
* Eurozone Flash PMI’s slip.

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

Good Day. And a Tub Thumpin’ Thursday to you! It’s also BREXIT referendum day! The results of the referendum could be a HUGE market maker, so we’ll have to look at that more today and tomorrow. Cards sweep the Cubs at Wrigley! That was pretty cool, especially since the Cardinals had lost all their home games last week! But the Cubs still have a 9.5 games lead, I don’t think they’re worried, especially with how good they are. I have a special treat this morning for my listening pleasure, as Robin Trower greets me with his song: Bridge of Sighs. Which seems apropos given there will be lots of sighs over the referendum results!

Here’s the skinny on the BREXIT referendum voting today. BREXIT referendum today. The polls will close I think at 5PM ET, and the results will probably be ready by early morning, but some thought on the result could come earlier. The Asian markets will have first shot at the results and I’m sure NY traders will all arrive early tomorrow. The markets could be in chaos at that point. That’s why I said yesterday that I was fearful to open the laptop on Friday morning. Boy have I been reading some differing opinions on this referendum. Danielle DiMartino Booth, whom I have much respect for, believes that the people of the U.K. should vote to leave the EU. And my friend, Dennis Miller, looks at it like Civil War. I don’t live there, so I don’t have a dog in this hunt. My opinion on the whole thing was that simply the Gov’t didn’t want to leave the EU, and therefore they would try every trick in the book to make certain that it didn’t happen.

And to go with all the fears that’s in the BREXIT referendum today. a trader sent me a note yesterday telling me that pound sterling / GBP 1-week implied volatility is currently around 42%. And that a currency’s volatility has rarely been this high before. But that’s nothing compared to what he says his trading people believe will happen to GBP volatility should the vote to leave win. That’s when they believe GBP volatility could rise as high as 114%! WOW! Well, this morning, the voting places are reporting huge turnouts of voters, which doesn’t really help with the call on how the vote will go, because we don’t know which way they are voting. But, traders are looking at it as a good sign for the BREMAIN. And that has pound sterling at a post referendum announcement high this morning. Hmmm..

I was hitting a deadline yesterday with the Review & Focus, and realized that it was going to be a wasted effort on my part to write the day before the BREXIT referendum! So, I got down on one knee (I can’t do two knees) and pleaded and begged for an extension and to my surprise, they agreed with me that today’s referendum and the potential for a market of chaos tomorrow was too BIG to leave out of this month’s R&F. I know that a lot of clients loved receiving the R&F each month, and now have a void in their lives. I’ve told you before, but in case you missed class that day, the R&F is now found on our website, and all you have to do is click here, or copy and paste this and make it one of your favorites!

The calm that was present in the currencies yesterday morning, has given way to strong moves, and for the most part the currencies have the conn this morning over the dollar, with only a handful of currencies losing ground to the dollar, led by the Japanese yen, which rallied while the other currencies lost ground, and then loses ground itself when the other currencies rally.

One of the BIG movers overnight is the euro, which is knocking on the door to 1.14 this morning. The Eurozone Flash PMI’s (manufacturing indexes) printed and showed lackluster performances, but especially from France, who really weighed down the other member countries’ respective performances. The overall Flash PMI showed the index at 52. 8. Germany, really tried to pull the Eurozone higher, printed a 54.1 index number. I don’t think euro traders are that much interested in the Flash report, and so they basically ignored it, and went back to marking euros up along with sterling this morning, because, like I said above, traders are taking the huge turnout of voters as a sign that BREMAIN will win.

Two other BIG movers this morning are the Aussie dollar (A$) and New Zealand dollar / kiwi. The A$ is within spittin’ distance of 75-cents, and kiwi has soared past 72-cents. This is all tied to the thought that I’ve rinsed and repeated twice now, but will do so again so that we know for sure that our hair is shiny, smooth and bouncy! HA! Basically, the BREXIT fears had the risk assets on the selling blocks the past couple of weeks, and with traders thinking that the BREMAIN vote will win, it’s a “risk on” trading day. So, I guess I have to hope for the currencies’ sake that it all remains as the traders believe.

The Norwegian Central Bank, The Norges Bank, met this morning, and have already announced that they were leaving rates unchanged, and that has the Norwegian krone on the rally tracks this morning, and outperforming its kissin’ cousin, Swedish krona.. This announcement by the Norges Bank was widely expected as recent data has been spot on with the expectations, and the price of Oil continues to recover, albeit two steps forward one step back, but recover nonetheless.

Speaking of the price of Oil. It did slip back to under the $50 handle in the past 24 hours. A lot of Oil’s recovery has come from the lower supply numbers, but did you see that a Federal Judge ruled against the White House on fracking yesterday? That should help the supply data, but how long will it take to get it all back on board? So for now, the price of Oil should remain well supported in the range it has traded recently, with the potential to bump up to the mid-$50 range. I saw where a large brokerage house recently issued a forecast for the price of Oil and it said that they saw Oil trading at $55 by year-end.. Hmmm. I guess, I’m glad I traded in my beloved Navigator! HA!

The Chinese renminbi was allowed to appreciate in the overnight fixing last night, and this marks a couple of times this week that we’ve seen the renminbi appreciate, which is different than the recent pattern for the currency. With the Chinese renminbi looking healthier this week, the other Asian currencies have taken note. The Singapore dollar (S$) has really had a good week, and even the Hong Kong dollar / honker, which is pegged to the dollar, has gained back to below the 7.76 figure.

Well, the Canadian dollar /loonie got off its rump and finally made a move yesterday, as received the latest Canadian Retain Sales report. May Retail Sales in Canada rose 0.9% which was above expectations of 0.8%, thus indicating that what we saw previously, healthy household spending, is continuing throughout 2016, so far, and that’s a good thing. I find this refreshing in that the price of Oil plunged last year, and has only recently begun to rebound, but has much work to do still, and yet the Canadian economy shows resiliency. Which in turn gives the loonie the opportunity show resiliency too!

Well, Gold, which most observers believe will lose ground should the BREMAIN vote win, as the fear will have been taken out, only lost $1.80 yesterday, but is down nearly $6 this morning. Thanks to the article on I read that the Bullion Banks are getting panicky because supply issues of Gold & Silver are deepening and they believe will ultimately lead to a reset of Gold prices to much higher levels. Here’s a quote from the site from “informed senior sources” at the highest level of the Gold Bullion Industry. “the market is subject to absolutely unprecedented conditions and a degree of illiquidity and supply issues not seen even in the immediate aftermath of Sept. 11, Lehman Brothers and the height of the Eurozone crisis.” Refineries and mints are being advised that bullion banks make take the unprecedented step of suspending the trading of physical Gold. That premiums on coins and bars may be widened, and that stop loss orders above 5,000 ounces may not be fi
lled at agreed prices. Oh Mercy! Talk about scaring people to death! I want to make one thing perfectly clear here. This is a report from GoldCore, and it could very well be skewed to do just that scare people. I think it’s best to just put this aside, and maybe pull it back out should things get this bad at some time in the future.

But it does play nicely in the sandbox with the thought that I’ve been talking about for over a year now, and that is supply issues, with all the supply basically being bought up by the combination of China, Russia, and India, is there any supply left to make the deliveries on the paper contracts? I read about a well-respected analyst Willem Middlekoop, has just written a book about Gold’s “big price reset”. I’m reading and hearing more and more about a “price reset” for Gold. Recall I told you that James Rickards thought that would be one way for the Fed to achieve inflation they so desperately desire. It all remains to be seen, folks, so I would just say, don’t think it will happen tonight or tomorrow, but IF it does, it will happen overnight, and you’ll wake up to find Gold priced at a figure, you won’t believe. But I did say IF it happens!

The U.S. Data Cupboard may have had a break this week, but that didn’t stop the IMF from printing some U.S. data forecasts.. The IMF cut its forecast for U.S. GDP this year from 2.4% to 2.2%… The interesting thing here was that the IMF had just cut its forecast in April to 2.4%! The IMF also wrote and urged the Fed to lean toward modestly overshooting its inflation target until they know for sure that the economy can deal with higher interest rates.

Once again, I’ll say that the IMF getting involved in attempting to sway monetary policy in a country is not a good thing. And every time the IMF does this, they bring the one-world order people out of the walls. But before I go on to something else, I also read this week that the U.S. hasn’t posted a 3% annual GDP for the past decade. That’s right, that’s what I said. GDP peaked in 2006 at 2.7%, and has never been higher than that in each year since! So, we know that the last decade has been the worst period of GDP growth here in the U.S. , but what was the best period? It was during the Regan years of 1983-1989 when for 7 consecutive years GDP growth was 3% or better.

The President now, sent to congress just this week, his forecast for GDP this year at 2.7%… Which would still be below 3%, marking 11 consecutive years below 3%, and is quite lofty in my opinion, considering that 1st QTR GDP was 1%, and the GDP Tracker on the 2nd QTR is at 2.2%.. There’s going to have to be a lot of heavy lifting in the next 6 months to get to 2.7%! And the Fed has just had its V-8 moment and talked about a slow-growth, low inflation economy that will continue for the next 2.5 years. That sure doesn’t spell out strong GDP to me!

Today’s Data Cupboard does have a couple of things, none of the real market movers, but still something to look at and maybe give some direction, should the BREXIT polls not provide the energy for the market. Today we’ll see Flash PMI’s, New Home Sales, the Chicago region PMI, and Leading Indicators. The Flash PMI’s are somewhat important, but they are preliminary, so nothing in stone here. But the Leading Indicators are always interesting, and should show a drop in the Index number given all the rot on the economy’s vine going forward. The dollar won’t get any love from these data reports today.

To recap. It’s BREXIT referendum day, and the potential market chaos for tomorrow is hanging over the markets like the Sword of Damocles. But so far, a huge voter turnout has traders thinking that means the “leave vote” will lose, and BREMAIN will win, and they are trading the risk asses as such, with euros, sterling, Aussie, and kiwi leading the currencies higher. A couple of currencies aren’t participating in the rally, with one of them the Japanese yen, and that makes sense to Chuck! Gold is down $6 this morning, watch out for a price manipulator ambush should BREMAIN win. The IMF lowers their forecast for U.S. GDP again! And the Norges Bank leaves rates unchanged this morning.

For What It’s Worth. I’ve been attempting to keep you abreast of the Puerto Rico debt problem news. The last thing that happened was that their ability to file bankruptcy was denied, and now there is a bill in the Senate to bail them out. Heavens to Betsy, why must we even deal with this, did we not learn anything in 2008? Well, here’s the link to the how article

Or here’s your Snippet: “The Senate is expected to keep Puerto Rico waiting for progress on a House bill to help the island address its debt crisis, as other options for the commonwealth have continued to be eliminated.

Senate Majority Whip John Cornyn, R-Tex., said that the Senate is expected to take up the bill, called PROMESA, next week while the House is on a recess that ends July 5, according to media reports.

That announcement came a day after Federal Reserve Board chair Janet Yellen told the Senate Banking, Housing and Urban Affairs Committee that Puerto Rico’s struggle with roughly $70 billion in debt and $46 billion in unfunded pension liabilities “is inherently a matter for Congress.”

“Our authority is extremely limited. and it wouldn’t be appropriate for us to give loans to Puerto Rico,” Yellen said in answer to a question from Sen. David Vitter, R-La, on Tuesday. “We have very limited authority to buy municipal debt and the authority we have, if we were [able to] buy eligible debt, I don’t think it would be helpful to Puerto Rico . Beyond that we have no ability to make emergency loans.””

Chuck again. At least that’s something I can agree with Janet Yellen on! They shouldn’t be buying Puerto Rican debt, and just leave it at that, go on with life and have a nice day, thank you very much!

Currencies today 6/23/16. American Style: A$ .7585, kiwi .7245, C$ .7880, euro 1.1398, sterling 1.4942, Swiss $1.0466, . European Style: rand 14.4080, krone 8.1630, SEK 8.1710, forint 275.49, zloty 3.8280, koruna 23.7455, RUB 64.03, yen 105.69, sing 1.3370, HKD 7.7566, INR 67.25, China 6.5738, peso 18.26, BRL 3.38, Dollar Index 93.10, Oil $49.94, 10-year 1.74%, Silver $17.42, Platinum $973.66, Palladium $561.24, and Gold. $1,264.20

That’s it for today. The 3rd full day of summer today. The summer heat is already with us, and that’s OK with me. But then I work inside. I always feel for those people that work outside in the heat, and I can’t begin to list the jobs that people do outside, for the list would be too long, and I would forget something and get in trouble with that group of people! Well, that sure was more like it with the Cardinals sweeping the Cubs. Strange team this Cardinals team is. But they still have more than 90 games left to figure it out and stay in that frame of mind! Now they head to Seattle where I won’t be able to watch the games, because they come on so darn late at night. Those West Coast trips are a real pain to me! The Great Dionne Warwick takes us to the finish line today with her great song: Walk On By. That’s quite a range from Robin Trower to Dionne Warwick, but then that’s me! I’ve always found that if you only listen to one type of music, you’ll fall into a rut, and that’s not a good thing! Pricing wasn’t as much as a hassle today, so this is better timed today. Now go out and have a Tub Thumpin’ Thursday, and Be Good To Yourself!

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