New Zealand Posts A Surplus!

* Gabriel says German economy is robust!.
* MAS leaves trading band unchanged .
* China to issue Gov’t bond in London!.
* CME bans three for “spoofing”.

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

Good day. And a Wonderful Wednesday to you! The Killers greet me this morning with their song: Somebody Told Me. Not exactly a “morning song”, unless you just got off work from the 3rd shift and need extra help getting through the night! But it is what it is, and that was the first song to come up on the “shuffle”. Whenever I hear that song, I think about how somebody told me years ago, to get out of the back office and onto a trading desk. It was the smartest thing I ever did, and also brought about the Pfennig. Where would we be without the Pfennig each day? HA!

It’s another day of mixed results in the currencies. One of the best performers overnight has been the New Zealand dollar / kiwi. It was announced yesterday that the Gov’t has achieved a Budget Surplus for the first time for the National Party, since they came into power in 2008. You may recall that the Aussie Gov’t forecast a Surplus for 2015, last year, but in June it looked like that was going to be a pipe dream, but in the end, when all the dust settled, tax revenue came in $5.1 Billion more than in 2014, and Gov’t spending was less than in 2014, that’s right, I said Gov’t spending was less in 2015 than in 2014, and those two things put the Budget into a Surplus. And kiwi responded accordingly, leaving the Aussie dollar (A$) to deal with its own problems right now.

Usually, if one of the two of these South Pacific gems move strongly in one direction they will have enough pull on the other to effect its performance. But not today, folks. Kiwi is strong, and the A$ is not! The A$’s problems started yesterday after trading past 73-cents. Profit taking stepped in, and then last night Westpac Bank announced that they were raising their mortgage rates for consumers. That seemed a little strange given the Reserve Bank of Australia (RBA) had just left rates unchanged, and talked like they were going to keep them unchanged for some time. The markets panicked and began running around like Chicken Littles, saying “interest rates are going higher, interest rates are going higher”. Come on! There’s no reason for all this panic! Stop, breathe, that’s it. breathe. OK, better. now let calmer heads prevail here before someone gets hurt!

The euro is also looking quite perky this morning, as it has climbed above 1.14, after steadily moving higher yesterday, after a brief morning selloff. I put that down to profit taking once the New York traders arrived at their desks, and saw the lofty level of the euro. I chuckle when I just typed that “lofty level of the euro” 1.14 is nowhere near the lofty levels this currency used to trade at, but given the fact that the currency was as low as 1.05 earlier this year, and looking like it was getting ready to take a trip to parityville, 1.14 does look “lofty” to me.

The euro got a boost today, when German Vice Chancellor Gabriel, sent out a note to the markets that talked about how he thought the German economy (the Eurozone’s largest economy ) was “robust” and that German GDP would print at 1.7% this year, and then tick up to 1.8% in 2016. I know, I know, that sure doesn’t look “robust” to you. But again, given that the Eurozone as a whole has been in a recession, and 80% of trade in the Eurozone is among themselves, I would say the German economy is doing just fine. And as Germany goes, so goes the euro when it comes to fundamental trading. And today, one of the rare days I must say, the euro is rallying on its own fundamentals, not just being boosted because the dollar is getting sold..

Another strong move in a currency this morning is the Singapore dollar, (S$) . Remember when I told you how I thought the Monetary Authority of Singapore (MAS) that was going to meet in Rocktober, was going to probably adjust the band that they set for the S$ to trade in, because of China’s problems? Well, the MAS surprised me, and the markets last night, by leaving the band unchanged, and only adjusting the “slope” within the band from 1.5% to 1%… this is in effect, leaving the band unchanged folks. And then the MAS backed up this decision by giving a stronger than expected advance estimate of 3rd QTR GDP to 2 -2.5%.. Interesting. quite interesting if you ask me. the MAS has always been very good, very prudent in setting the trading band, so if the remains the case, and they haven’t caught the virus that every other Central Bank around the world has come down with, that makes them do very stupid things with interest rates and their currencies, then I tip my hat to the

Well, as I’ve been sitting here writing, the dollar has gotten weaker VS the currencies it held an advantage over when I first turned on the screen, even Gold which was down about $4 is back to flat at this moment in time. So, it now appears to be a day when the currencies, minus the renminbi, have the wrestled the conn from the dollar.

Yesterday, I had told you in the early morning that Gold was down $5, but by mid-morning the shiny metal was rising in price and ended the day with a nice gain. I was reading the Tocqueville Letter, courtesy of Ed Steer’s letter, and in it the well-respected Gold analyst, John Hathaway, says that the Financial Market turmoil has been what was needed to rekindle interest in Gold. Hmmm. He mentions that “On a year to date basis, most of the leading stock market averages are now in the red. The Dow Jones Industrial average has now declined for three consecutive quarters, only the third such string of losses in 40 years.” – John Hathaway

I’ve never put much thought into the idea that Gold would strengthen with Financial Market turmoil. Geopolitical turmoil, yes most definitely. But if John Hathaway says it’s the way it is, then so be it! All I know is that Gold is trading this morning around $1,168. A far cry from its lofty level of +$1,900, but also a far cry from its current cycle low $1,072 in July. And stocks sure have been quite volatile since July. So, I see the relationship.

The price of Oil is flat today, still trading with a $46 handle. Well, Monday might have been a holiday for some, but that didn’t keep well respected investment analyst and writer, Dennis Gartman from talking about the price of Oil, saying that “we’ve seen the low in Oil”. I bet the folks at the Fed, are hoping he’s right, for what the folks at the Fed are in dire need of is a walloping helping of rising inflation. Because? Well, because they said it was coming, inflation that is, and without it, they are hard-pressed to hike rates.

The Chinese renminbi was left to depreciate last night, and the depreciation was the largest since the 3 devaluations a couple of months ago. This move wiped out all the good days the renminbi had been having. Keeping the currency in line with expectations, is what I see happening here.. The markets may have more control in the direction of the renminbi these days, but the Chinese Gov’t still has the hammer. I did read that China is about ready to auction a Chinese Gov’t Bond denominated in renminbi, in London! This will be the very first overseas financial center to issue a Chinese Gov’t bond, denominated in renminbi. Ahem. let me clear my throat here. so that you hear me clearly. This is another step for the Chinese to not only gain an even wider distribution of their currency, but kill two birds with one stone, and also open up their sovereign bond market. Knock, Knock, who’s there? It’s China, and we’re taking over the markets, will you let us in?

I’m sitting here at my writing desk at home this morning, and right above my laptop screen is a picture of my dad, my younger brother David, and me sitting on our back porch in what was probably 1966 or 1967. Man I’ve changed! I lost my dad to cancer in 1995, and lost my brother David to a heart attack a few years ago, so I’m the last of the Three Musketeers here, and if were a horse they would have taken me out back and put me out of my misery. But, at least in the picture we’re all smiling and happy. Oh, that back porch, it looked like it was ready to fall down, and my clothes looked like I was a Eastern Europe immigrant to the U.S. Nice haircut too, Chuck. HA!

Well The U.S. Data Cupboard finally yields something we can sink our teeth into today! And batting cleanup is September Retail Sales! I’ve already talked about this print a couple of times recently, but I’ll repeat it for anyone that missed class those days. The BHI indicates to me that this data will be disappointing. in other words, up just a touch. nothing to write home about, or get all lathered up about a strong economy over. Stupid PPI (wholesale inflation) for September will also print, along with Business Inventories, and then this afternoon the Fed’s Beige Book prints.. Oh, and yesterday’s Monthly Budget statement was delayed to today. Hmmm.

To recap. It was a mixed morning of results of the currencies this morning, but by the time Chuck had written about 1/2-of the letter, the currencies all had turned on the dollar, except the Chinese renminbi, which posted a large depreciation last night, thus wiping out all the good appreciations that have been booked recently. China is going to issue a Chinese Gov’t bond denominated in renminbi in London! Don’t look back, they may be gaining on us! New Zealand posted a Budget Surplus, and kiwi responds positively, as it should. Singapore’s MAS basically leaves the band unchanged and talks up the economy, and Gold reversed its loss yesterday morning and appears to be doing the same thing today!

Before we head to the Big Finish today. How many of you recall me explaining the meaning of the trading term “spoofing” in the past? Oh, that few. Hmmm, Ok, then because this is BIG news and it involves the term, I’ll go back through it, so that when I tell you the Big News, it all makes sense.

Spoofing happens when a trader tries to create a false appearance of market interest by placing orders and then immediately canceling them. The CME Group, which owns the New York Mercantile Exchange, COMEX and other markets, has permanently banned three traders who admitted to violations including “spoofing”. One trader, was exposed for repeatedly entering large orders for crude oil, Gold, Silver and Copper futures contracts without the intent to trade. He would have resting orders, smaller orders for these assets already on the books, and by entering a large order, he would generate false interest that then would execute his smaller orders. Once he received the fill on the smaller orders, he would just cancel the large order. I received some of this info from the GATA folks, and the rest from an article on Reuters.

And there’s no manipulation going on in the markets, right? If I began to laugh here, I might end up falling out of my chair, so I’ll just let that lay down there, and move along!

For What It’s Worth. Well, I found this on Ed Steer’s letter this morning, and it’s quite interesting, as it’s a follow up to something I’ve talked about here in the Pfennig for some time now. You can find it here:

And here are the Snippets. Reports out of China suggest that the currently chairmanless Shanghai Gold Exchange (SGE) is on the verge of announcing a new chief executive in Jiao Jinpu, a senior official from the Chinese Central Bank – the Peoples Bank of China. (The SGE is an arm of the PBoC). The likely appointment of Jiao is seen as the definitive indicator that the SGE is now very close to setting up its much-heralded Yuan gold price benchmarking system to rival that in London and give China more control over gold prices in the future. Whether this will still happen this year, though, is rather less certain despite earlier suggestions that it would. Jiao will have to work fast to achieve this, but undoubtedly the groundwork is already well under way.

But the Chinese have also shown that they don’t hang around in implementing key new economically-oriented entities once the go-ahead decision has been taken and, according to a Reuters report Jiao is seen as a mover and shaker who should be able to move things forward rapidly assuming that the benchmark system process would be high on the agenda.”

Chuck again. Yes, I really thought that this would be in place before year-end. but, I guess we’ll have to see what happens here, as it might still take place before year-end, and then again it might not! But either way, it will happen. And that signals to me that the price manipulators are going to find that they have no one to play ball with in the future.

Currencies today 10/14/15.American Style: A$ .7260, kiwi .6745, C$ .7705, euro 1.1410, sterling 1.5375, Swiss $1.0465, . European Style: rand 14.4155, krone 8.1065, SEK 8.1315, forint 272.65, zloty 3.7125, koruna 23.7660, RUB 63.07, yen 119.55, sing 1.3860, HKD 7.7500, INR 65.03, China 6.3408, pesos 16.55, BRL 3.8935, Dollar Index 94.50, Oil $46.46, 10-year 2.03%, Silver $15.91, Platinum $987.80, Palladium $686.65, and Gold. $1,168.04

That’s it for today. Yes, I’m at home this morning. And that’s all I’ll say about that! I guess when we were celebrating Columbus Day our own Nicki Storm celebrated a birthday! Nicki is a professional photographer, and takes the picture of the trade desk that we send out each year at Christmas time. So, Happy Birthday Nicki! Well, my beloved Cardinals who won 100 games in the regular season, were bounced from the playoffs by the Cubs last night. Strong starting and bullpen pitching were the reasons we won 100 games, but the strong pitching faded at the end of the season, and that spelled trouble for my Cardinals. The Redbirds scored plenty of runs in the series, they just didn’t stop the Cubs from scoring more! I see that the Big Boss, Frank Trotter, had an article that he had written post to LinkedIn. That’s pretty cool. Big Head Todd & the Monsters are playing their song: Tomorrow Never Comes on the iPod right now. a haunting guitar highlights this song. I received an
email from a famous actor (I won’t mention his name) but he tells me that he knows good writing, and I’m the best! WOW! Can you believe that? Now, if everyone else would just fall in line here, everything would be great! HAHAHAHAHA! But seriously, I thank this fellow for sending that note. I love it when people appreciate what it is I attempt to do every day, rain, sun, snow, sickness, and nights without sleep, it goes out! Now, it’s time to get out of your hair today, but first, let me remind you to go out make this a Wonderful Wednesday! (I’m going to bed!)

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