RBA Keeps Up With The Joneses.

* A$ & rubles are only currencies with good rallies.
* U.S. economic data continues to muddle along.
* Schäuble doesn’t see Greece meeting deadlines.
* Gold inches higher after nice rally yesterday.

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

Good day.. And a Tom Terrific Tuesday to you! It’s the 5th of May, which means it is Cinco de Mayo. Stay tuned for more on that. But first. What about that comeback for my beloved Cardinals last night? Down 5-0 before they even came to bat, they battled and battled and eventually took the lead and won 10-9. Who said scoring is down in Baseball? HA! Well, it certainly was over the weekend, but whenever the Cardinals and Cubs get together things get a little crazy. Usually those crazy games are reserved for Wrigley Field, but not last night. My good friend Charlie who lives on the West Coast, and is a diehard Cubs fan, sent me a text once the Cardinals took the lead. Ahem, Charlie. you live on the West Coast, that’s 2 hours difference form where I am, which means. I was not awake to see what he was talking about. No worries, glad to hear it! And a very BIG announcement from the Cardinals Hall Of Fame yesterday, I was so happy about will be talked about later.

Well, the Reserve Bank of Australia (RBA) did indeed do what everyone else is doing, and cut their benchmark, internal rate to a record low of 2%. The RBA pointed to falling commodity prices which are causing the economic slowdown in the Aussie economy as the reason for the rate cut. But I think that’s just window dressing folks. You know, I want to take you back a few years, and I made a real BIG DEAL about the U.S. President’s State of the Union Address where he made a statement that just really sealed the deal for me, that the U.S. wants a cheap dollar. The POTUS said that he wanted to double exports in the next year.. That’s the same as saying, we need to get the dollar cheaper so our exports can be more competitive. It was at that point, that the dollar began to slip once again, after rising during the financial meltdown. then fast forward to a year or so later, and the countries around the world, seeing the dollar dropping, decided to play their own game of beggar thy neighbor, and began cutting interest rates to debase their own currencies. At first Australia not to enter into the race to see who could debase their currency the most, but eventually they couldn’t sit on the sidelines much longer. And that leads us back to here. And the RBA rate cut last night.

You know. If you just read the statement by RBA Gov. Stevens after he cut rates, you would think that all’s well in Australia and that the RBA left rates unchanged. Stevens said that “there are signs of improving household spending.” Stevens also pointed out an improving jobs markets, and then gave no indication that any further rate cuts would be necessary. So guess what? The Aussie dollar (A$) is proving that all the bad stuff was already priced in, and looking as if traders think that’s the line in the sand, as far as rate cuts go for the RBA. 2%… And the A$ is rallying this morning.

As I look at the currencies this morning, the A$ and the Russian ruble are the only currencies in rally-mode VS the dollar. The ruble has been a back and forth currency lately, moving ahead some days, and some days coming back, but like I said, today it’s in rally-mode. You know, the Russian economy is finding its path to growth to be a tough row to hoe, but the ruble continues to gain VS the dollar. I think this is possible because, everyone pretty much knows that the worst of the hits to the economy from the sanctions have happened, and unless there’s a HUGE problem that pops up in the economy, the ruble should be able to at least trade sideways if not gain a bit more VS the dollar. At least that’s how I see it.

Well, the euro, which just last week was playing with 1.13, is losing ground again this morning, and in danger of losing the 1.11 handle as I write. Of course it’s all about Greece these days, and if you read or hear some pundits and economists and observers out there, you would be out buying supplies of water and non-perishables for the Armageddon that is going to come from the Greek problems. I’m not poking fun at these guys here. I kind of agree with them, but then the conservative thinking side of me takes over and I come back to the idea that the Eurozone and Greece will make an 11-th hour deal to kick the can down the road, just like we do here in the U.S. every time we get close to exceeding our debt limit.

But if you listen to German Finance Minister, Wolfgang Schäuble, who said that the “Greek Gov’t’s talks with creditors are more constructive, but he’s skeptical about euro-are deal by May 11th”, you would be out making the water and perishable purchases. Recall, that May 11th is the first day of payments that the Greeks need to make (I detailed these a couple of weeks ago) So, through all this, the euro finds it difficult to get on terra firma as long as this Greek drama continues. As I told you yesterday, the euro’s rise in April was all about bad U.S. Data, which the Fed tells us was just “transitory”, so until the markets see the proof that it was or wasn’t, the euro struggles because of Greece.

So, speaking of U.S. data. Yesterday we had March Factory Orders which were 2.1% VS the previous month, which was revised downward to -.1% from the previous print of .2%… Ex Transportation orders Factory Orders were flat. And the previous month’s .8% rise was revised downward to .1%… I tell you all this, because it looks to me that this month’s print will be revised downward next month. But a flat Factory Orders is not what the doctor ordered for the economy folks.

Today’s U.S. Data Cupboard will show us the March Trade Deficit. You may recall that February’s Trade Deficit showed a nice narrowing to $35.4 Billion, but guess what? March’s Trade Deficit is expected to widen back out to $41.7 Billion, so we’ll have to wait-n-see, eh? The forecasters believe that imports swelled in March, even though, Retail Sales were awful. So, I don’t know what they use for reference, but whatever it is, they might want to adjust it. I’m just saying.

Norway’s Norges Bank will meet this week (May 7), and most observers, economists, and traders believe the Norges Bank will opt to cut rates at this meeting. But I’m on the other side of the fence on that one. Here’s my reasoning. The Norges Bank, seeing the stabilization and mini-rally of the Brent Oil price at the last meeting, opted to keep rates unchanged. Well, since that last meeting, Brent Oil price has rallied nearly 22%… So, I see the Norges Bank keeping rates unchanged, and IF they do, a heavy weight will be removed from the krone, for at least a few days. But, should the Norges Bank surprise me, the krone will get whacked. Again that’s how I see it. not necessarily going to end up just the way I see it.

Canada will also print their Trade Balance for March, and here, it is expected to narrow. A modest narrowing, but a narrowing just the same. C$ 800 Million, which sounds like a rounding error when compared to the U.S. Trade Deficit. But I don’t see this moving the Canadian dollar / loonie much unless there’s a rogue print in there, that I don’t see.

The currencies seem to be faring a little better now that some time has passed since I first came in.. The euro is near being flat, along with the loonie, while the Mexican peso and S. African rand have carved out some small gains. And Gold is up $4 right now, while earlier it was flat… But had a very nice rally yesterday as it attempts to get back to $1,200. again!

Speaking of Gold. I haven’t talked about China’s Gold accumulation in a while. Brother have I been reading some interesting thoughts by smart people about the amount of Gold China has. Of course I think the smartest of them all is Gold researcher, Koos Jansen, but Koos Jansen has been very quiet about Chinese Gold accumulation lately, but recall he said that he thought China has 14,000 Tonnes of Gold, while other researchers put China’s total around 10,000 tonnes of Gold. I do think that China is going to announce just how much they have when it comes to push or shove at the IMF meetings on whether the renminbi / yuan gets included in the IMF’s SDR’s.

I was talking with the Big Boss, Frank Trotter, who to me is the smartest man I’ve ever met, and when I said that when China finally announces their total Gold Reserves, that it should be a boost to Gold, he reminded me that to us, that’s a big story. But to a lot of investors out there, they couldn’t care less about what China has or doesn’t have. See there, he brought me down to earth with a simple statement, and didn’t have to resort to his usual trick of Jedi mind tricks!

Longtime readers know I used to gush over whatever then Morgan Stanley economist, Stephen Roach had to say. Stephen has been lost in the crowds the past few years, and it’s difficult to find stuff that he says. You know he’s probably just as lost as we all are as to why the 3 rounds of U.S. QE didn’t blow up in the Fed’s face. But he did have something to say about how he feels the Fed is laboring under a Dangerous Delusion. Let’s listen to what Stephen Roach had to say here. “The world economy is in the grips of a dangerous delusion.

Not only have wealth and currency effects failed to spur meaningful recovery in post-crisis economies, they have also spawned new destabilizing influences that threaten to keep the global economy trapped in a continuous series of crises.”

Wow! Many years ago, I called Morgan Stanley to see if I could use a good portion of a Stephen Roach speech for the monthly newsletter to clients, called the Review & Focus, and I talked to a young lady named Melissa. She decided to come to St. Louis and meet me, and set up a currency trading line with Morgan Stanley. Every time the Allman Brothers song: Sweet Melissa plays on the iPod I’m reminded of that meeting, when we began to trade with Morgan Stanley, and I got to use Stephen Roach’s speech!

To recap. The RBA cut rates to a record low of 2% last night, but the A$ is rallying, as traders feel that 2% is the end of the rate cuts by the RBA, and the RBA Gov. Stevens, sounded like he was quite pleased with the goings on in Australia. Chuck talks about the Russian ruble, and how all the “bad stuff” for the Russian economy from the sanctions has been priced in, and as long as there are no surprises the ruble should be able to at least trade sideways with the dollar or gain a bit more. Gold is up a couple bucks this morning after a nice rally yesterday. U.S. Data continues to not show that the weakness lately is “transitory”.

I have to stop here to sing along with my all-time fave Chicago song: Hard Habit To Break. I’ll be back in a couple of minutes.. Crank up the volume Chuck!

For What It’s Worth. Since I mentioned that I haven’t talked about China’s Gold accumulation I thought that this story that was on mineweb.com would work nicely today. You can read the whole article here or be satisfied with my snippets below. http://www.mineweb.com/news/gold/chinas-sge-gold-flows-still-at-high-level-51t-last-week/

“For the second week in a row, gold withdrawals from China’s Shanghai Gold Exchange (SGE) have been at around 50 tonnes – a high level for the post Chinese New Year period. Withdrawals from the exchange for the first 16 weeks of the year have already reached around 780 tonnes suggesting that if flows out of the SGE are maintained we could be in for a new record year with withdrawals well in excess of those of 2013, which totaled almost 2,200 tonnes. As we have said in these pages before, whether one considers SGE withdrawal figures to equate to Chinese gold demand, which the Peoples Bank of China would seem to suggest, or whether the true consumption figure is actually quite a bit lower as the mainstream gold analysts reckon, they still remain an excellent indicator of demand growth or fall in the world’s biggest market for the yellow metal.

Time was when Chinese mainland net imports from Hong Kong were considered the best proxy for Chinese demand and up until just over a year ago this was very much the case with the majority of Chinese gold imports coming in by this route. But since then the Chinese have opened up the routes by which gold can be imported and we suspect that now at least 40% of gold imports, probably even more so far this year, go directly into the Chinese mainland via ports such as Shanghai and Beijing, thus bypassing Hong Kong altogether.”

Chuck again. As I’ve told you in the past, Gold researcher Koos Jansen, believes that the SGE withdrawals equals Gold reserves in China, which I happen to agree with him on. The past few years, China’s has accumulated more Gold than was produced in the world each year, so the question is. Where did the additional come from? I have a guess, what’s yours?

Currencies today 5/5/15. American Style: A$ .7875, kiwi .7495, C$ .8270, euro 1.1115, sterling 1.5115, Swiss $1.0705, . European Style: rand 12.0335, krone 7.6035, SEK 8.3875, forint 271.40, zloty 3.0810, koruna 24.6170, RUB 51.39, yen 120.50, sing 1.3365, HKD 7.7510, INR 63.43, China 6.1180, pesos 15.43, BRL 3.0835, Dollar Index 95.59, Oil $59.46, 10-year 2.13%, Silver $16.50, Platinum $1,146.25, Palladium $786.00, and Gold. $1,190.84

That’s it for today. Well, the BIG Announcement that made me so happy last night was that my all-time fave Cardinal (I was too young to see Stan Musial in his prime) Ted Simmons was named to the Cardinals Hall of Fame! I’ve been pushing everyone that I know to petition the baseball writers to vote Ted into the National Baseball Hall of Fame for years now. Look if Gary Carter is in the Hall of Fame, Ted Simmons should be too! And should have been voted there before Carter! I got to know Ted a bit in 1981, when he worked with us at Mark Twain Bank in the off season trying to learn about the bond market. I ran into him at spring training a few years ago, and had a picture taken with Chuck and Ted, and it’s a prized picture to me. So, Congrats Ted Simmons! Bob Forsch, Curt Flood, and George Kissell were the others named to the Hall.

So, for the Cinco de Mayo story. In December 1997, Chuck, Kathy, and our friends Duane and Toni were in Cancun. There was a guitar player with his amp and sound equipment playing in a courtyard near a busy street. We walked over to watch and listen to him play. He began to play the Kansas song: Dust in the wind, I saw a microphone on his amp, and picked it up and began to sing the song along with him. Soon there was a huge crowd standing around listening to his. Of course Kathy was embarrassed but I was in heaven, entertaining the crowd, just like in the days of my youth. So, about 10 years ago, it was Cinco de Mayo, and I was telling this story in the Pfennig, and how this day reminds me that night in Cancun. And one very angry reader, sent me a very nasty email calling me something that here on the desk we all laugh about, but I can’t say here in the Pfennig. So, anyway. Happy Cinco de Mayo, and I hope you have a Tom Terrific Tuesday!

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