Missile strikes in Syria have investors worried.

In This Issue.

* Missile strikes in Syria.
* Waiting on the March job numbers.
* Dollar steady after mixed messages.
* Gold gets a boost…

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

Good morning. Investors were all set up to watch the March job numbers which were released this morning, but got a major surprise when the screens were turned on. US missile strikes in Syria had investors on edge this morning, selling equities and buying precious metals and the dollar. But before I dig too deeply into all of the news I’ll lead off with a piece Frank sent me late last night:

Jacksonville – I talked the other day about entrepreneurs. Front and center this evening my Uber driver provided a demonstration. I asked what his plans were when he got out of the Navy. At first he said open a barber shop. Good thought I suppose, but not exactly thinking big. After another 10 minutes of conversation I asked again. This time it all came out. Not just a barber shop with three chairs and a pole out front. He plans to build a national brand, have a salon and possibly spas on site, have a record label on the side and make this the biggest thing ever. Like I said earlier this week I love entrepreneurs. I’ll be watching for Earl to begin making it all happen in a couple years.

On the curmudgeon side of the aisle I ran into one of my pet peeves Wednesday night / Thursday morning. Our flight was delayed out of New York. Really delayed. After landing at 1:30am I was able to grab the last Uber standing (the cabs and rental car desks had all gone home). Departing the airport we sat for about 4 minutes at a stop light on the parkway leading to the highway. One leg of the road that had green was blockaded for construction, the other side led no where. It happens all over the country driving through cities at off hours – block after block of red lights, often at dangerous corners at that time of night. Has the concept of a flashing yellow or red departed from the rule set of traffic designers? Seems like with today’s technology one could easily create a program that monitors the one car rolling through at that hour – and with computers 100’s if not 1,000’s or cars, and provide a light pattern that moved them all smoothly through the city in the most efficient manner. Geez.

Jobs are the topic of choice for today. Will the March storms reduce the counts? Will the US continue to show strong growth in number of jobs anyway. Will we actually start to see wage pressure? We know that since the Great Recession a tremendous number of jobs have been created – we now have net more than before the crash. But how are wages distributed? Many analysts suggest that a large part of the voters on both sides felt left out. Is this because of under-employment? No wage growth. Or simply feeling like they haven’t participated. A roll of the drums, and the number is . . . .

As Frank suggests, the jobs report was front and center on investors’ minds last night, but instead investors had to deal with a surprise military action. The missile strike in Syria certainly surprised the world, and investors typically don’t like surprises and safe havens benefitted. The US dollar, Japanese yen, and precious metals all saw a big lift following the airstrike. But before I dig too deeply into this morning’s markets I’ll let Dane Moody give us an update on what occurred yesterday:

Thursday provided some news from central banks and governments moved the markets, albeit just a little bit. Overall, the trend of the day was a firm dollar. The Dollar Index was only up .14%, but traders seemed hesitant to move against in with tomorrows jobs number looming. Let’s take a look at the news that moved the markets.

Brazilian real dropped over .85% on news that the Brazilian president Michel Temer authorized changes to a pension reform bill. The changes will likely mean less fiscal austerity for the country that is in the midst of battling to balance their budget, and the real sold off on the news.

European Central Bank President Mario Draghi commented that he sees no need to deviate from the ECB’s current policy path, and they would need proof that inflation would return to their target before making any changes. These comments moved the EUR down a tad against a firmer dollar and brought the other European currencies with it. The euro finished the day at 1.0642, down 0.2% from Wednesday. Swedish krona was down .38%.

However, one of the European currencies bucked the trend and moved up against the EUR and the USD on the back of news from their own central bank.

The Czech Central Bank dropped the peg against the EUR on Thursday. For the past few weeks, rumors of the peg dropping circulated, and billions in speculative investments poured into CZK, hoping to gain when the peg was dropped. Remember, the Swiss National Bank threw the markets for a loop when they dropped their peg to the EUR in January of 2015, sending the currency up over 30% overnight (here in the US) before settling back toward parity within the next few days. However, the move in the Czech Republic was far more muted. CZK experienced severe swings within about a 2% range, moving wildly in minutes and hours following of the news, but settled in at 24.989, up a bit over 1% – definitely not the big gains these investors were looking for.

Let’s look at a few of the other movers and shakers yesterday. The Mexican peso defied the strong dollar and posted a small gain on Thursday. Likewise, the Indian rupee posted a small gain, trading at 64.6020. On the other side of the ledger, the Australian dollar lost ground yesterday and is now the second worst performing currency of the month. The AUD had been strong through the first quarter of 2017, but the second quarter hasn’t been so kind to date.

The precious metals had a uniformly down day on Thursday, with gold holding above $1,250, but giving up $3.50. Silver was essentially flat on the day, and platinum and palladium had small drops. Oil posted a 1% gain for the day.

Thanks to Dane for another excellent recap. Today was supposed to be all about the payroll numbers, and since I’m a bit behind I am able to share the details, The headline unemployment rate fell to 4.5% while the change in Nonfarm payrolls had a dramatic miss at 98k. Hourly earnings, which was the main item of focus ended up right on expectations. The report only adds to concerns that the US economy is slowing. But some will point toward March storms as the reason for the miss. The reports impact on the markets was somewhat clouded by the overnight military action but here is how I broke it down for reporters this morning:


This morning’s job numbers places another speed bump in front of the equity rally we have seen post Trump. Investors were looking toward the March payroll numbers to provide a spark to get equities moving higher, but instead they were presented with another reason to sell. Combined, these payroll numbers and the missile strike in Syria will give investors cause for concern. Any momentum in the markets has now been sucked out. We will need to see strong earnings numbers in order to propel equities on their next leg up.


The combination of Syria and the jobs miss has given a big boost to precious metals prices. Uncertainty in geopolitics typically moves investors toward gold and silver, and the jobs miss calms metal investor fears of a more rapid interest rate increase.


The dollar is flat on today’s news. Increased conflicts in the middle east is seen as a positive for the dollar which is seen as a ‘safe haven’ currency and the place international investors typically hide when the world erupts. But the March payroll numbers put pressure on the dollar rally as the miss could cause delays in future US interest rate increases.

As with equities, the dollar has been ‘priced for perfection’ with all things positive already priced into its value. The risk to dollar and equity investors is a miss on any of these positive pricing factors. If the automobile and jobs disappointments which we have seen this week are followed by additional disappointments, we could see the dollar lose value going forward.

All in all a very volatile set up for the markets this morning.

For What It’s Worth. I have a treat for everyone this morning with a note from Chuck Butler:

Well, bust my vacation buttons! There I was minding my own business, when I came across something that made me want to write! Now that says a lot, because… When I’m on vacation I’m on vacation from writing! So with no further adieu … Here’s the skinny… Well, JPMC head honcho, Jamie Dimon, sent out a letter to shareholders telling them that the problems with the “too Big to Fail” institutions was solved, and that no taxpayer funds would be used should one of the institutions fail going forward…. Well, I must say that I do get a warm and fuzzy with that statement… Until, that is, until my spider sense begins to tingle…. And I have this question…. Did the accountants include the approximately $168 TRILLION in derivatives that reportedly these institutions hold, and that Warren Buffett, refers to as “weapons of mass destruction”? Now… I don’t own a farm…. But if I did, I would bet it that they didn’t include these derivatives… Now ask yourself, do you still feel warm and fuzzy about these ” too big to fail” institutions?

Thanks to Chuck for sharing his thoughts. You can read the entire letter here (Too Big to Fail begins on page 18) https://www.jpmorganchase.com/corporate/investor-relations/document/ar2016-ceolettershareholders.pdf

Currencies today 4/7/17. American Style: A$ .7557, kiwi .6974, C$ .7449, euro 1.0665, sterling 1.2457, Swiss $.9970 European Style: rand 13.7975, krone 8.5959, SEK 8.9961, forint 290.09, zloty 3.9619, koruna 25.012, RUB 56.3405 yen 110.89, sing 1.4007, HKD 7.7690, INR 64.51, China 6.8930, pesos 18.785, BRL 3.1189, Dollar Index 100.54, Oil $51.42, 10-year 2.3516%, Silver $18.22, Platinum $955.30 Palladium $802.00, and Gold $1,251.56.

That is it for today. Cardinals gave the game away yesterday, blowing an early lead. But we still have a long way to go. I’m going to be a bachelor this weekend as my daughter takes off with my wife later today for a visit to South Carolina. I’m actually looking forward to staying put this weekend after what has been a pretty hectic travel schedule. And besides, it will give me a chance to catch up on all of the ‘honey dos’ which I’ve been pushing off. Chuck will take back the reins of the Pfennig next week from down in Florida, so this is it for a while from me. Hope everyone has a fantastic Friday and thanks for reading the Pfennig.

Chris Gaffney, CFA
EverBank World Markets