RBA Leaves Rates Unchanged. (they told us they would!)

* The dollar has the conn over most currencies today.
* Will Draghi throw the euro under the bus again?.
* What the heck is China doing with the renminbi?.
* U.S. Data points to no rate hike!

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

Good day. And a Tom Terrific Tuesday to you! 2 days down for November. It’s a long month Chuck, so you had better stop with the counting off the days! Yes, you’re right, evil twin. Al Wilson greets me this morning with his song: Show & Tell, a real old fashioned R&B song, that gets you moving in your seat. Slept like a baby again last night… Sooner or later, I’m going to become accustomed to that lack of sleep pattern, and adjust to it, but until then, I’ll continue to complain. HA! Kathy calls me a grumpy old man, and I saw a cartoon the other day, where the grandpa says he’s going as a grumpy old man for Halloween, which was the same as he was for Christmas, Easter, the 4th of July, etc. HAHAHAHAHAHA!

Front and Center this morning is the news from Australia, that the Reserve Bank of Australia (RBA) left rates unchanged, and that has given the Aussie dollar (A$) the freedom to move about the country. Apparently 45% of those economists and observers surveyed thought the RBA would cut rates this month. Apparently, those 45% don’t know how to read. Recall, that the RBA told us a couple of weeks ago that they saw no need to cut rates further for now. And after the rate decision was announced, the statement was printed, and basically from what I can tell, was a little more upbeat about the economy and their assessment of growth. So that means going forward, rate decisions will be data dependent, which to me means there will be no rate cuts this year, unless the bottom falls from under the Aussie economy.

So, that’s one Central Bank Meeting out of the way this week. We still have the Bank of England (BOE) on Thursday. As I look at everything going on, I really don’t see much for today, which means the current dollar buying we’re seeing is most likely going to continue throughout the day today, as there’s just nothing to interfere with it. In fact, from what I can see, the A$ is the only currency that’s carving out a gain VS the dollar this morning. And that’s with the price of Oil climbing back above $46. Hmmm.

The Chinese renminbi, which had seen two consecutive days of HUGE appreciations, got whacked last night. I thought 2014, was the year that the Chinese were teaching the markets a lesson about thinking the currency was a “One-Way Street” ! Strange stuff from the currency movements in China folks. I told you a couple of weeks ago, that I just couldn’t figure out what was going on with the currency, and still can’t! In other news from China, it was reported that the MNI (Market News International) China Business Sentiment index jumped higher in Rocktober to 55.6 from a 51.3 print in September. I would think that this would be a very positive signal that the economy is coming off the bottom, for this survey not only covers the current economy but a pulse of their own business and an outlook to the future.

There are some rumors going around that someone’s underground and she will, no wait! The rumors going around that I’m talking about don’t have anything to do with a Witchy Woman! Instead these rumors are about how the Chinese have taken to intervening in the FX markets, which wouldn’t be Big News, but how they are doing it would be. The rumors are that China is intervening in the Forwards markets. Now the Forwards markets are usually reserved for the markets, speculators and so on. So, what’s China hoping to achieve playing out there with the Big Boys? Like I said, I can’t figure out what China’s doing right now with their currency, so I guess eventually they will either tell us, or we’ll see in the price of the renminbi what went on.

The reason I don’t get all hopped up about this stuff with the renminbi, is that it doesn’t really interfere with what I’ve said all along the Chinese were up to with the currency, and that is to make it a reserve currency.

The euro is getting taken to the woodshed this morning in anticipation of what European Central Bank (ECB) President Mario Draghi, will say in a speech that he will give later this morning (our time) in Frankfurt. Traders believe that Draghi will give the “he will do whatever it takes to promote growth and pump up inflation” speech, which would indicate that the ECB is ready to increase stimulus, as they first mentioned in their last meeting a couple of weeks ago.

Yesterday, I told you that Draghi had seemed to back off that statement over the weekend when he said that “an increase of stimulus was an open question”. So, Draghi is playing with fire folks, he’s burning a candle on both ends, and you know what happens when someone does that! They get burned! He’s talking about additional stimulus when it suits him, and then talking it down when it suits him. And in the end. It is widely expected that eventually, the stimulus, in the form of bond buying, will have to increase, as the Eurozone economy is being stubborn about growing, although inflation did move up out of negative territory at the last print.

And then mix in the upbeat Fed and their insistence on calling for rate hikes, and you have the perception by the markets that the two largest economies in the world are moving in opposite directions. And we learned long ago, that you are what you are perceived to be.

OK. Apparently, I’ve slighted the Brazilian real this morning, as it too is carving out a gain VS the dollar. But in my defense, most days, the real hasn’t opened for business while I’m writing the Pfennig, and that was what was going on this morning. So. what’s behind the real rally? Well, apparently, the impeachment process is pushing the envelope in Brazil politics, and I’ve explained all that to you previously, but for new readers, here’s the Reader’s Digest version of this explanation. The current Administration under Dilma Rousseff, has done just about everything they can do, even throwing the kitchen sink at the real in the past 5 years. Now there are inaccuracies in the voting in the last election, and they have come back on Rousseff, who now faces impeachment. Real traders are basically on the books as pro-impeachment, so as the impeachment process goes, so goes the real.

In the “old days” 2003, 04, 05, 06. The number of new readers each day would be a large number. These days, not so much. But, there are new readers all the time, and I always want to make certain they get caught up. The Great Joe DiMaggio was quoted as saying. “There is always some kid who may be seeing me for the first or last time, I owe him my best.” That’s how I view writing the Pfennig. There could be someone new that will decide if this is 5 minutes they want to spend each day reading this letter, or not.

And I did slight and not “represent” the Russian ruble quite right this morning. The ruble has pushed to a gain on the day. The price of Oil climbing back above $46 has a lot to do with this move in the ruble. The other thing to think about is a speech that the Central Bank of Russia (CBR) Gov. Nabiullina, made overnight, where she told lawmakers that she expects the price of Oil to remain around $50, which would put a cap on ruble strength. I think she’s probably correct, as I don’t see the price of Oil taking off for higher ground, given the fact that the Iran production will come back on line soon, thanks to, no wait, I can’t comment on that! But I like her thought on the ruble remaining pretty much unchanged next year. Take the fact that you can get a large interest rate differential to the dollar, euro, yen, pound, etc. and have the currency trade range bound, that’s like manna from heaven. Of course all the best-laid plans of mice and men go awry. it’s always good
to keep that in mind, when you see something laid out in front of you like this scenario.

I had a quick laugh this morning when I turned on the currency screens, as yesterday two of the top performers, the S. African rand and the Czech koruna, have done the 180, and are this morning are two of the worst performers. From the penthouse to the outhouse! It all plays with the sentiment in the markets of whether or not the Fed is going to hike rates in December. The Beatles are playing their song: We Can Work It Out on the iPod right now, and there’s a line in there where they say, “try to see it my way”, which they were singing right when I finished writing the last sentence. Yes, I know most of you dear readers “see it my way” on my thoughts that the Fed can’t hike rates and won’t, but I wish the markets would come around to seeing things my way, then we could put all this rate hike talk and dollar strength because of that talk, to bed!

I mentioned it yesterday, but didn’t really have the time to get into the whole thing. But the Fed’s preferred measurement of inflation the Personal Consumption Expenditures (PCE) printed last Friday. And in September on a year-on-year basis, the PCE was 1.3%… Now I ask you, is that anywhere close to the 2% inflation target the Fed is seeking? And in the ISM report yesterday, it showed that wages are softening. Uh-oh, no wage inflation what’s a Fed to do?

So. Speaking of the ISM yesterday. The U.S. Data Cupboard yesterday had the ISM or PMI whichever you prefer to call it, Manufacturing Index, and it didn’t shout “get set ready go” to the markets, as it was really a non-event. I saw that I had a fat finger typo yesterday when I told you the Manufacturing index (I like PMI, because that’s what the every other country in the world calls it!) had fallen to 50 in September.. But the actual number was 50.2, and in Rocktober, the trend continued in place with the index falling each month since last August 2014, with a print of 50.1. So, it inched downward. but the move was so small, the markets took it as the Manufacturing sector “steadying out”. I don’t see it that way, but then I don’t wear rose colored glasses!

And there was something in the way she moves. No wait! Something in the PMI that caught my attention. Each month there’s an employment section of the PMI, and this month the employment piece showed a downward move. Now the New Orders piece of the PMI showed a small move up, and those that wear rose colored glasses would like to point out that employment lags new orders. I guess that’s true given the charts I brought up, but. I will point out that sometimes the “catching up” doesn’t quite make it to the new orders figure. But, the reason I bring the employment downturn up this week, is that it’s a Jobs Jamboree week. Just something to think about when we actually see the cooked books the BLS will serve us on Friday.

The Data Cupboard today, has September Factory Orders, which in August were negative -1.7%… September’s print should remain negative folks. But that’s the U.S. economy in a nutshell. We’ll also see some vehicle sales data for Rocktober, but the Big Print today, is Factory Orders. Tomorrow we will begin to see the pre-Jobs Jamboree “indicator reports” print, along with the September Trade Deficit. Which you may recall ballooned up to $48 Billion in August. I’ll point out that in September we began to see the dollar back off its daily assault on the currencies, and with a cheaper dollar, exports might have been given a chance to improve in September. I guess we’ll see, eh?

Gold is flat to down a buck and change this morning, so let’s just call it flat. And Silver is down a nickel. I saw some numbers (thanks Bob!) on physical Gold buying & accumulation in the Big Three. China, India and for some reason the substituted Germany for Russia, but here goes anyway. the Retail Investment in these three countries have seen increases so far this year VS last year, of 26%, 30%, and 19% respectively, and these three markets accounted for an extra 26 Tonnes of retail buying in the 3rd QTR! And get this. Central Bank purchases were up 13% to 132 Tonnes, with Russia expected to be the biggest buyer this year.

OK. This data comes from Proactive Investors of Australia, and I have a bone to pick with it. China will be the biggest buyer this year, next year, and so on. It’s just that China prefers to report small amounts being added to their reserves, instead of the “real numbers”.

To recap. Well, the dollar has the conn for the most part today. The RBA left rates unchanged, and the A$ is on the rally tracks this morning, and one point of the morning it was the only currency carving out a gain VS the dollar, but soon the real came on board, and eventually the Russia ruble joined in on the fun of the few. Not much going on in the data world, etc. We will see Factory Orders today in the U.S. and Mario Draghi will be speaking later this morning and traders are anticipating that he will talk about the need for additional stimulus, and these euro traders have already begun to take a pound of flesh from the euro.

Before we head to the Big Finish. I wanted to bring this little ditty to your attention. My friend, John Mauldin, writes to a million or so of his friends each week in his letter titled: Thoughts From the Frontline, and can be found on his website: www.mauldineconomics.com. So, I was reading his dissertation on calculating inflation from his most recent letter, and found this item that explains something that I’ve always had difficulty explaining to people, and John does it so well. So, here we go!

“And gods forbid we use the method employed in Europe for calculating inflation. Evidently, housing is not a very big deal in Europe, so it is a much smaller component of the inflation calculation; and if you can believe it, the Europeans actually use an archaic methodology for calculating housing inflation that involves the real prices of home sales, as opposed to a totally artificial guesstimate called Owner’s Equivalent Rent, used by more sophisticated countries like the United States.”

Currencies today 11/3/15.American Style: A$ .7175, kiwi .6710, C$ .7625, euro 1.0980, sterling 1.5385, Swiss $1.0100, . European Style: rand 13.8670, krone 8.5030, SEK 8.5495, forint 285.75, zloty 3.8700, koruna 24.6960, RUB 63.30, yen 120.85, sing 1.3995, HKD 7.7500, INR 65.65, China 6.3310, pesos 16.47, BRL 3.8265, Dollar Index 97.18, Oil $46.58, 10-year 2.17%, Silver $15.37, Platinum $969.97, Palladium $645.40, and Gold. $1,132.38

That’s it for today. Well, it won’t be long now and the Christmas displays will be out. I saw where satellite radio is already playing Christmas music. We used to wait until after Thanksgiving. Shoot by the time Delaney Grace is older, they might be starting the Christmas season in July! Well, baseball is over until February. UGH! England Dan & John Ford Coley, are playing their song: Nights Are Forever Without You on the iPod right now. I know you are questioning how can King Crimson and this duo be on the same iPod? Well, that’s me in a nutshell, diversified! HA! Well, our Rams (for now their “ours”) won on Sunday, marking a two-game winning streak! That’s a rare occurrence for this team, who hasn’t had a winning season since 2003! But this could be the year they break that losing season streak. Wouldn’t that be just fitting, that after all these years of losing, they finally turn the corner, and then leave town? Yes, the Rams owner wants to take his team to Los Angeles, where they came from in 1995.. I would love to say “good riddance” but then I remember what it’s like here not having a football team. UGH! OK, I’ve got to get my mind off this! A Supertramp song is playing now, that will help. So. let’s button this up, and get it out the door! I hope you have a Tom Terrific Tuesday!

Chuck Butler
Managing Director
EverBank Global Markets
Editor of A Pfennig For Your Thoughts
1-800-926-4922
https://www.everbank.com