Looking on the bright side of life.

In This Issue.

* Looking on the bright side of life.
* Yellen worries about Fed independence.
* Steady UK inflation leaves sterling flat.
* Precious metals give back their gains…

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

Good morning. Frank will get things rolling again this morning, so take it away Frank:

Saint Louis – Yesterday morning I headed downtown after hockey to drop off a package with my tax accountant. Astute friends have pointed out that the otherwise draconian rulers of the Inca Empire only required about two-months of service as tribute tax while our current system runs around six-months in certain brackets. On the other hand, I am happy to not have to carry extremely large rocks up the hill to Machu Picchu.

Once I arrived I parked near a couple buildings in the city center that don’t make sense to me – and drove by one that I intensely dislike. The odd ones sit across from each other at the corner of 8th and Market – one is what locals would call the General American building, and the other the Centerre headquarters. The old General American building holds my prize for most wasted space per square foot of available land with a 3-4 story atrium full of air and no offices. The Centerre building has much of the same. I recall that when it was built we calculated that it probably took 1% of return on equity off of the bottom line of the builder. Not entirely ironically both companies are no longer stand alone entities. As far as I am concerned a company can build and spend on what they want and answer to shareholders – as both did – but the next building is another story.

The one I don’t like is the United States Courthouse. Completed in 2000 the isolated stand-alone building blocks the view of the St. Louis Arch from the west – my chief complaint – not unlike a certain hand gesture. It’s the largest single courthouse in the US – who knew we had so much trouble and woe around here. Switching to the Monty Python mode and looking on the bright side of life we see a couple indicators that when headed down are good news. Underemployment has fallen as real jobs have replaced some stand-ins; long term unemployment remains higher than normal but is declining, and; the labor force participation rate looks like it might be edging up. Maybe we won’t see sustained 4% GDP growth soon but on the other hand maybe some real improvements.

Thanks to Frank for another great Pfennig intro. That 4% GDP growth seems to me to be a bit too optimistic, and even Fed Chair Janet Yellen who is typically one of the US Economy’s loudest cheerleaders said yesterday that the potential long term growth rate for the US economy is below 2%. Yellen was all over the cable news channels yesterday, talking about her expectations for US growth along with some questions about the Feds independence and the new Trump administration. The markets handled her comments without much volatility, as most of what she spoke about was already known. Dane will bring us up to date on the other events which moved the markets yesterday.

It was a fairly uneventful Monday trading day, all things considered. The currencies were a mixed bag with the pound sterling, Canadian dollar and Brazilian real leading the pack as the best performers during the day. The South African rand and the Indian rupee fell further against the dollar during Monday’s trading session. All these moves were relatively limited, as there doesn’t appear to be much “news” for the markets to react to, beyond hawkish comments from Fed Vice-Chair Dudley. Dudley indicated that the pace of the Fed’s rate hikes might not be slowing, as the markets inferred from the March Fed minutes. His comments put the dollar in the driver’s seat in the morning, but the sentiment wore off as the day continued.

Dudley’s comments did not bode well for the precious metals, as traders knocked the precious metals down to start the session. Silver fell by 26 cents early in the session, and gold fell by about $6.00. However, as the day wore on, the momentum faded, and gold and silver were able to claw back the lost ground., Gold, in fact, eked out a small gain on the day, closing at $1,255 per ounce, and silver made its way back to level with its open. However, platinum and palladium were the hardest hit and were unable to bounce like gold and silver. Platinum ended the day down 1.3%, and Palladium lost 1.6%. Gold has fallen about 16 dollars from the highs on Friday morning of $1,270/ounce – which was a 6 month high for the shiny metal since November.

Oil made another strong move on Monday, trading over $55/barrel on increasing geopolitical tension in the Middle East. The US bombing of the airfield in Syria put tensions in the region to the front of traders’ minds, despite the fact that Syria is not a big oil producer relative to other nations. Russian Energy Minister Novak said that Russia is debating the merit and possibility of extending the OPEC-mandated cuts in production beyond the current 6 month agreement, which could also provide a boost to oil. However, any long term rise in the price of oil will have to deal with the current record stockpiles in the United States.

Over in Europe the big data release was the UK inflation numbers which showed Consumer prices increased by 2.3% last month. Inflation had been heating up in the UK, helped out by a falling pound sterling and this month’s number shows it is now comfortably above the BOE’s 2% target. But policy makers are still worried about the longer term fall out of BREXIT and therefore they are not going to be overly aggressive in hiking interest rates. This push and pull kept the pound sterling flat on the day.

There is no data releases this morning so we will probably have another fairly calm day in the markets. With a holiday shortened week we have seen volumes in both the precious metals and currency markets drop; most of the traders must be on spring break. Tomorrow will be fairly slow data wise with just the import/export price reports. Thursday will bring the weekly jobs numbers and a slew of data regarding PPI along with the U of Michigan sentiment number and the Bloomberg Consumer Comfort index. Friday will be a short trading day with the equity markets closed and the World Markets group just working a half day.

As we open up trading this morning the dollar is drifting lower vs. most of the major currencies and precious metals are moving up on safe haven bids.

Currencies today 4/11/17. American Style: A$ .7511, kiwi .6942, C$ .7512, euro 1.0612, sterling 1.2439, Swiss $.9924 European Style: rand 13.8298, krone 8.5881, SEK 9.0358, forint 293.52, zloty 3.9968, koruna 25.099, RUB 56.919 yen 110.48, sing 1.4033, HKD 7.7707, INR 64.48, China 6.8957, pesos 18.6769, BRL 3.1304, Dollar Index 100.80, Oil $53.05, 10-year 2.3409%, Silver $17.92, Platinum $9423.00 Palladium $790.15, and Gold $1,260.01.

That is it for today. I’m told Chuck will be back in the saddle again tomorrow, so this is the last group effort Pfennig for a while. We have a number of visitors to our offices today including our legal partner Barry and the head of EverTrade Brokerage, David C. I’m running late again this morning, so I’ll just wish everyone a Terrific Tuesday and thanks for reading the Pfennig.

Chris Gaffney, CFA
EverBank World Markets