Look Who Wants To Compromise Now.

* No data means no weak data.
* So, dollar begins to recover, and momentum takes over.
* Coeure throws a cat among the pigeons.
* N.Z. inflation ticks higher.

But First, A Word From Our Sponsor..

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

Good day.. And a Tom Terrific Tuesday to you! Well, we had an ECB (European Central Bank) member throw a cat among the pigeons overnight, and the currency recovery is no more. Shoot Rudy, even the recent reliables for currency performance, the Chinese renminbi, and Russian ruble lost ground to the dollar overnight. The New Zealand dollar / kiwi and Mexican peso are the only two I see carving out gains VS the dollar this morning. So, another false dawn, it appears has showed up at our door. UGH! Little Feat greets me this morning with their song: Dixie Chicken, which I happen to know is one of our Business FX guru, Aaron Stevenson’s fave songs!

Well, I sent the Pfennig out yesterday morning, signed and sealed, with the thought that dollar buying might just be the call to the day, given no U.S. data to weaken the currency. And as the morning went along, the dollar buying grew heavier and heavier, but mid-morning (for me that is) the euro was down over 1-cent, Gold had lost its $5 early morning gain, and so on and so forth. That’s the momentum that can happen in the currencies, folks. Some basic selling of euros gets things in motion, and soon the momentum has taken over and selling begets more selling. It can go both ways, but yesterday it was all for the bad as far as euros and Gold were concerned, and I don’t have to tell you astute dear Pfennig Readers this, but if the euro is getting sold, the rest of the currencies will find things to be quite difficult to maneuver through without their own respective selling.

So, the dollar buying was already going strong, when ECB member Coeure, threw his proverbial cat among the pigeons with a comment about how the ECB will accelerate its bond buying / QE before the summer market lull by frontloading purchases in May and June. So, why was this important for Coeure, and the ECB to announce this during a euro selloff? Because if you ask me, and I know there’s no one else you would ask right now, I think the ECB was trying to kill two birds with one stone.

Think about it. Last week the news was all about rising yields on bonds around the world, but the German 10-year Bund was highlighted, as the benchmark for the whole lot of global bonds. And add to the rising yields, we had the euro punching out new levels almost daily as the poor beaten and beleaguered currency rallied strongly VS the dollar. So, what did Coeure, and the ECB for that matter do to correct this? They came out and talked about a massive effort to frontload bond buying, thus bringing yields back in line, and deep sixing the euro’s efforts to rally.

There’s a lot of history with bond buying, which is also called Quantitative Easing/ QE, and I call it debt monetization, and crack cocaine for countries. So I don’t mean to gloss over it every day as if new readers know what I’m talking about. Come on Chuck! They aren’t mind readers! So, for the newer readers, basically, when a Central Bank can no longer cut interest rates lower, they resort to bond buying/ QE. The Japanese started it all back in the 90’s, and they are still at it, as they continue to believe that bond buying is the way out of their 20 year economic funk. The U.S. picked up the bond buying in March of 2009, and 3 total tranches of bond buying later, we’re still in the same economic funk. Then the U.K. tried their hand at bond buying, and we’ve seen the economic funk that Bank of England Gov. Carney has had to sift through, and then seeing the wonderful results that these three countries had with bond buying, (NOT!) the ECB decided to join the club. It will get them nowhere. but I guess they have to experience it before they give up and just allow the invisible hand of economy guide the economy to where it believes it should go, without Central Bank interference!

Whew! I’m worn out after putting my fat fingers through the wringer there with that wordy paragraph! HA! So, to circle the wagons and bring us back to where we started here this morning with this discussion. The euro has lost about 2-cents in the last 24-hours of trading. I would think this is a little overdone.. but the markets will decide that! In other news from the Eurozone, CPI (consumer inflation) was confirmed (recall that last week we talked about the “flash estimates”) with a rise of the core data of .6% year on year (YOY) in April.. The German current Situation as measured by the think tank ZEW, saw a larger than expected fall from the April reading of 70.2 to 65.7. The Current Expectations component also saw a huge drop from 53.3 to 41.9. This is not good data for the Eurozone, but I don’t think it had that much to do with the drop in the euro, that was al Coeure.

Last night the Reserve Bank of Australia (RBA) printed their last meeting minutes and in the end, I would say there was nothing in there that would lead the markets to believe the RBA is all lathered up to cut rates in June, in fact I would say that the RBA was right down the middle of the road. But, and you knew there would be a “but”, The RBA did leave their foot in the door way that leads to the rate cut room. So, that’s just the RBA playing their cards carefully folks, and no reason to think the RBA is hell-bent and determined to cut rates. Unfortunately for the Aussie dollar / A$, that’s not how the markets saw the minutes. and the A$ got sold. Not by a HUGE margin, but still things don’t look so perky anymore here.

I mentioned the U.K. earlier in the bond buying discussion. I just keep coming back to what I was saying a year ago, about the pound sterling rally, that it was smoke and mirrors that BOE Gov. Carney was using to make the markets think he was ready to hike rates. And I was right! (don’t act surprised it happens!) The U.K. economy went belly up, and so did Carney’s rate hikes, leaving the pound sterling to fend for itself. Early this morning, we saw more evidence that Carney’s rate hikes have been reduced to tiny figures in the rear view mirror, when U.K. inflation printed weaker than expected. Headline inflation fell -0.1%… This is Big folks, let me tell you why.

This -0.1% print represents the very first time CPI has fallen YOY since official records have been kept (1996). So, Mr. Carney, time to move to the next circus ring, and bring out the next act, eh? For the center ring act has grown old and stale. What’s that Mr. Carney, you still want to hike rates? Well, that’s all fine and good sir, but I would like to be sitting in a paradise with an umbrella drink in my hand, and island maidens fanning me with large tree leaves, but that’s not going to happen, and neither are your rate hikes! And that pound sterling rally? Well, it’s fading away, just like my image of me in the paradise!

So, like I said above, the New Zealand dollar / kiwi is one of two currencies with positive gains VS the dollar this morning. Let me set this up for you. First of all kiwi has had the snot knocked out of it in the past week, basically because the markets got the idea that a rate cut was a given at the June Reserve Bank of New Zealand (RBNZ) meeting. Well, then last night, New Zealand printed their latest Inflation Expectations Survey, which showed inflation inching higher to 1.85% from 1.80%… Now this might not seem to be a HUGE move, folks, but when the inflation target is 2%, and New Zealand is now within spittin distance of the target, it becomes a Huge deal.. And so, kiwi was able to carve out some gains. The gains are not HUGE by any stretch of the imagination, but, given the dollar strength across the board this morning, you have to smile when you see the gains.

Yesterday, I told you how Greece was getting down to the cheese that binds regarding getting the aid they need to stay afloat, as their collateral was running out. And overnight Greek Prime Minister, Tsipras, you know the man who ran for office on the idea that Greece was NOT going to compromise and commit to austerity to get their aid, admitted that he was now open to compromising with the creditors to obtain the aid Greece needs. Well, Well, Well, look at who just showed up at the door with his tail between his legs? And look who is promising that his administration would undergo deep reforms and reorganizations to gain this aid. I told you all that this is the scenario I expected to happen, and now the real compromising can begin, which will probably take us to the 11th hour, when a deal is made to kick the can down the road. I love it when a plan comes together!

Hey. for those of you who are subscribers of James Grant’s letter, the Interest Rate Observer, are in for a treat this month. The Big Boss, Frank Trotter, is featured in the letter. Now, Grant’s letter has very strong restrictions, and I can’t even tell you what Frank said, but just wanted to let you know to look for him if you’re a subscriber. Frank and Chuck have always held Jim Grant above the economists, observers and letter writers out there. So, both Frank and Chuck were tickled to death when Frank found out he would be in the letter this month! WOW!

Gold is down $3 this morning, after going from positive to negative yesterday. But the selling was somewhat muted after the $5 early morning gain was wiped out, so as my fat fingers type away this morning, Gold is trading around $1,222.. I saw some more Gold Accumulation data on Google+ last night, from Gold researcher supreme, Koos Jansen.. Koos Jansen reported on the website: www.bullionstar.com that withdrawals from the Shanghai Gold Exchange (SGE) from May 4 to May 8 accounted for 37 tonnes of Gold. As I’ve explained before, Koos Jansen believes that the withdrawals of Gold from the SGE are equal to Chinese demand to add to reserves. Koos also reported that year to date 858 tonnes have been withdrawn, up 19% from 2014. WOW!

Now the World Gold Council (WGC) doesn’t see it this way, and so they still think China only has a small amount of Gold. Boy are they going to be shocked when China tells the IMF what they have. I read a report by James Rickards the other day, about how people have it wrong regarding what China’s doing with their Gold. So, I guess that means me. Well, that’s his opinion, and I have mine, and we won’t know who’s wrong and who’s right until we get on down the road, so let’s not start telling people they are wrong, before we know the real result, eh?

The U.S. Data Cupboard has April Housing Starts, and Building Permits data today. Housing Starts attempt to reverse the big drop in the March numbers, and the same goes for Building Permits. But that’s it, regarding data today. So, that could mean more dollar strength, given that the weak data has been like kryptonite to the dollar lately, and with no real market moving data today, that means no kryptonite.

Tomorrow’s Data Cupboard will have the Fed’s FOMC Meeting Minutes from April. And the markets will be looking for signs of a Hawk. I think they are going to have to settle for a dove, but then that’s just my opinion and I could be wrong!

To recap. the dollar selloff ended yesterday, as small selling got the momentum going and by the end of the day, the currencies didn’t look so perky anymore.. Overnight ECB member Coeure threw a cat among the pigeons by reminding the markets that the ECB is doing QE, and that they will frontload the summer lull, with huge bond buys in May and June. This sent the euro for a ride on the slippery slope, and the single unit is now 2-cents below yesterday’s figure. OUCH! That’s going to leave a Mark! New Zealand inflation ticked higher, and kiwi rallied. The RBA meeting minutes left the door open for rate cuts, but the RBA didn’t sound like they were committed to doing anything, but the A$ got sold.. And Gold is off $3 this morning, but the physical Gold buying and accumulation by China continues to be HUGE folks.

For What It’s Worth. For some time now, I’ve told you that the Sanctions placed on Russia by the Eurozone were hurting both entities. And it would behoove the Eurozone to drop the sanctions on Russia, especially now that a cease fire with Ukraine has held strong. the Russian / Ukraine conflict was the reason for the sanctions to begin with, so why, Eurozone, are you dragging your feet here? Well, this is discussed in the RT in an article that can be found here: http://rt.com/politics/259573-naryshkin-russia-europe-contacts/

“State Duma Speaker Sergey Naryshkin has urged European politicians to stop listening to US propaganda and start working on common Eurasian economic interests with Russia.

He wrote that the foundations of the European Union or “Big Europe” had been laid by people who remembered the lessons of the First and Second World Wars and these people still assert NATO’s eastward expansion was a mistake. Europe is taking great risks if it remains in the political wake of a nation located thousands of miles from the European continent. The Ukrainian crisis is yet another confirmation of the fact that EU member countries must decide on their foreign policies without any foreign interference, he noted.

If this doesn’t happen, Washington will eventually destroy the EU’s economic sovereignty by skillful manipulation of WTO mechanisms, Naryshkin wrote.Large-scale, rigid deals the United States is pushing through, under the guise of liberalization of trade, are in reality bringing the European economy under US control, he noted.

The Duma speaker expressed hope that more people in Europe are beginning to understand that cooperation with the US is leading the EU into a dead end. “As American propaganda’s scary tales vanish like smoke more people in Europe will understand that they had been deceived again,” he wrote.”

Chuck again. Yes, this is nothing more than an attempt by Russia to get the Eurozone people to stand up to their leaders and demand the sanctions be dropped. If you were in his shoes you would do and say the same things. And like I said, it would behoove both entities to drop the sanctions.

Currencies today 5/19/15. American Style: A$ .7975, kiwi .7410, C$ .8215, euro 1.1190, sterling 1.5495, Swiss $1.0745, . European Style: rand 11.8540, krone 7.4690, SEK 8.3190, forint 273.70, zloty 3.6280, koruna 24.4580, RUB 49.38, yen 120.10, sing 1.3315, HKD 7.7515, INR 63.66, China 6.1098, pesos 15.11, BRL 3.0044, Dollar Index 94.98, Oil $59.00, 10-year 2.19%, Silver 17.44, Platinum $1,165.70, Palladium $785.02, and Gold. $1,220.11

That’s it for today. Well, we have a new reader that’s joined us for today’s class. One of my friends from Roosevelt High School here in St. Louis, has joined! So, welcome Pam. I sure hope you like what you get to read each day, and it makes you think. Last December, I had lunch with a group of high school friends, of which Pam was a part of. It had been over 40 years since I had seen her, so an old friend becomes new again. R.E.M. is playing their song: Losing My Religion on the iPod right now. Well, the sun came out today, YAHOO! We’ve been in a yucky weather pattern where the weekdays are nice, but the weekends are filled with rain, and now the temps have dropped again.. Hey! Mother Nature! Please notice that the calendar says next Monday is Memorial Day, you know, the pools open? Geez Louise, and to think I left the warm sun of S. Florida nearly 2 months ago! UGH! Kathy is getting ready to leave town again this weekend, and while Alex is technically “at home” I don’t really see him much, so I’ll be on my own for two weeks this time. I know, I know, I can’t believe someone would want to be away from me that long! HAHAHAHAHAHA! Of course I know why! Cardinals lose in 14 innings last night to the Metropolitans… UGH! Well, It’s time I got out of your hair for today. Let’s go make this a Tom Terrific Tuesday!

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