RBNZ Surprises With A Rate Cut!

* A mixed day for the currencies.
* BOC leaves rates unchanged.
* ECB meets today, The Fed next week!
* Gold sees more selling! ..

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

Good Day. And a Tub Thumpin’ Thursday to you! We had some stuff going on yesterday that moved the markets, and there’s more in store for today, as the European Central Bank (ECB) is meeting while I write! I’ll start today’s letter with a GREAT BIG HAPPY BIRTHDAY to my good friend Rick Baur. And Pink Floyd greets me this morning with their song: Shine On You Crazy Diamond, which is a 17+ minute song with 7 parts to it! I love Pink Floyd’s music.. It’s great headphones music, if you know what I mean..

Front and Center this morning, The Reserve Bank of New Zealand (RBNZ) surprised the markets with a 25 Basis Points rate cut last night. I told you going into yesterday that the call to cut rates or not was 50/50, and that the recent kiwi strength was not going to make RBNZ Gov. Wheeler very happy. In fact, in his press conference following the rate announcement, Wheeler had this to say about kiwi. “The trade-weighted exchange rate is more than 4 percent higher than projected in December, and a decline would be appropriate given the weakness in export prices.” And guess what happened? Kiwi got sold like funnel cakes at a state fair. So, Wheeler got his wish. UGH!

13 years ago, I created a currency basket CD titled: The Prudent Central Bank CD. This was back in the day when I could name the CD’s I created without any outside interference, and thus the Prudent Central Bank (PCB) was created and named. It consisted of 4 Central Banks that I deemed to be Prudent, because at that time, we already had some Central Banks that were getting jiggy with their policies. And the RBNZ was one of the “prudent central banks” that made up the CD. That was 13 years ago. And as they say. That was then, and this is now. And right now, the RBNZ wouldn’t even be my last choice as a Prudent Central Bank! They have really let me down, folks.. They have basically bowed to the masters of the Currency Wars, and given in to the global easing pressures.. And kiwi? Well, it got taken to the woodshed, and it deserved the trip!

At first, the Aussie dollar (A$) shrugged off the selling in kiwi and rallied to 75-cents, but has since fallen victim to the sympathy trade, as kiwi gets sold by the bushel full.. And with the RBNZ bowing down to the easing pressures, how long will it be until the Reserve Bank of Australia (RBA) has to do the same?

The Bank of Canada (BOC) left rates unchanged yesterday, which was somewhat of a surprise to me, given the recent loonie strength. But the BOC said that the currency was basically trading near their assumptions. Well, hearing that, traders received green traffic lights all the way downtown and they took this to push the currency appreciation envelope for the loonie. Don’t look now, but the loonie, which just a couple of months ago, looked as if it were being left on the side of the road to die, has really responded favorable since. And the BOC sounded quite positive about the prospects for the Canadian economy.. I liked hearing this from the BOC. Unfortunately, I don’t see how they will meet their target GDP for 2016 of 1.4%… They will be lucky to achieve ½ of that figure.. But keep the optimism, because if there’s one thing I’ve learned over the years, is that the optimism can’t hurt! In addition, PIMCO says that the BOC is on hold for the rest of the year.. Hmmm.

The Chinese renminbi was allowed to appreciate last night in the fixing, but this time the appreciation amount was of the usual size. So, maybe we’re getting back to normal now that the U.S. has come and gone, and the Party’s Annual Meeting is over. In China overnight, their latest CPI (consumer inflation) printed, and really surprised the markets and observers by how strong inflation was.. The February CPI printed 2.3% year on year, (consensus was for a 1.8% increase), but one has to be careful thinking that this indicates a robust economy returning to the China. I think it probably has more to do with the Lunar New year celebrations than anything else.

As I said at the top today, the ECB is meeting as I write. First there will be a rate announcement, and here I wouldn’t be surprised to see ECB president Draghi, announce a rate cut, which would take their already negative rates deeper into the negative territory. And then 45 Minutes after the rate announcement, Draghi will speak and give his thoughts on the economy, whether or not the ECB cut rates, and. Any announcement of additional stimulus. I read on the Bloomberg this morning that the euro has taken over the role of the worst performing currency.. Hmmm, I don’t see it that way. In a quick check of the currency returns year to date, the euro is beating the Swiss franc, kiwi, Mexican peso, and British pound. So, how does one come up with the worst performing currency anyway? Even if you narrow the search down to just G10 currencies, the euro still beats, francs, kiwi and pounds!

The currencies are mixed again today, with the Russian ruble the best performer overnight, and kiwi the worst performer in the same period.. In between we have the Chinese renminbi, Brazilian real, S. African rand, Indian rupee all carving out gains VS the dollar, while the A$, yen, pound, franc and a few others are flat on the day or up / down a bit..

Today starts a very important week folks.. it starts with what Draghi will do at the ECB meeting and statement afterward, and ends next week with a Fed Meeting. Will they, or won’t they hike rates next week. We could end up with this HUGE divide between the U.S. and the Eurozone, should the Fed opt to hike rates, and the ECB moves their rates into deeper negative territory, and adds additional stimulus. It would set the U.S. off on a voyage in uncharted waters.

I was minding my own business yesterday, when I saw an email come through from a commodities guy that I’ve known for a long time, he seemed excited about something, so I stopped what I was doing (reading a book) to take a look-see at what he was excited about. And I’m so glad I did! What he was telling me is that some commodities are starting to rise in price again, something we hadn’t seen in a few years. And he sent me a graph that even illustrated what he was saying.. The important thing to this is that “some commodities” are seeing rising prices, like iron ore, which just a few weeks ago had fallen to a price of $285, has risen to $420.. and the CRB (commodities index) has risen from a 160 level to 170.

I love it when a plan comes together. A few months ago, I sent a note to Chris Gaffney, telling him that I thought the next MarketSafe should be a commodity MarketSafe, as commodities were beaten, tarred and feathered by investors who hated them immensely. And that’s when it hit me, that I’ve always told people to buy on weakness, sell into strength. And you couldn’t get much weaker than the commodities were at that time.. Now, does this mean we’re going into a bull market again for commodities? Shoot Rudy, if I knew that, I would be spending my time on an island in Fiji, with an umbrella drink in my hand and my toes in the sand! I’m just trying to point out that we COULD be at the beginning here. Could, would, should, and a nickel will get you nowhere!

Gold is getting sold again this morning and has really dropped by a lot since reaching for the stars earlier this week.. I wonder what the Gold Traders see today that’s different than what they saw earlier in the week when Gold was nearing $1,300? Come on boys, share it with us all, for we all want to know! Oh, you don’t have anything for us? This weakness came about from paper trading? Ahhh, the old blame it on something, or someone else.. The problem here is that I believe them! So, let’s get through this rough patch and then form a new base and move onward and upward!

The price of Oil reached for $38 overnight, trading above the figure briefly, before falling back below the figure. The Russian ruble, Mexican pesos, Norwegian krone, and Brazilian real are all carving out gains on this bump up in Oil’s price..

The U.S. Data Cupboard continues to be a barren box in need of some data prints! Sure we’ll see the usual Weekly Initial Jobless Claims today, but the real meat comes tomorrow, when February Retail Sales will print. I can tell you right here, right now, that the BHI has indicated to me that this report will be disappointing once again..

Well, here’s another TJATP item for today. I really didn’t think that I would be doing this every day, but, when the opportunity to point something out arises, then I must take advantage!

Today’s piece comes from a Bloomberg article that may have slipped past quite a few people and that’s why you haven’t really heard about this problem.. but.. according to Bloomberg There’s a shortage of benchmark 10-year Treasury Notes in the market for borrowing and lending, and with all the trading of this benchmark Treasury, uncompleted trades are soaring! These uncompleted trades are called “fails”. And Fails surged into the billions of dollars in recent days for the newest 10-year Treasury. The interesting part of all this is that if it weren’t for an anonymous informant no-one outside of the Treasury bond market circle, would know about it, because these figures aren’t made public.

My first job in a brokerage house back office, after I came out of the mail room, was the “fail desk”, where I had to deal with clients that had failed to pay for their stocks trades, or delivered their stock on sales. This was not a pleasant job, for dealing with people that didn’t want to pay for their stock because it fell in price after they bought it, was a real treat. NOT! But these were retail trades, not the institutional size trades that are failing with the 10-year Treasury Note! Liquidity, is never a problem until it is one.

To recap.. The RBNZ cut rates last night surprising the markets, and thus getting kiwi put on the selling blocks. Chuck reminisces about when the RBNZ was considered a Prudent Central Bank. But that can be no longer! The A$ shrugged off the kiwi problems at first, then sold off in sympathy, and now looks to be attempting to shrug kiwi problems off again. The BOC met and left rates unchanged, which was surprising to Chuck, given loonie strength. PIMCO says the BOC will be on hold the rest of the year. The ECB meets right now, and first there will be a rate announcement, followed 45 minutes later by a statement by ECB president Draghi. the Currencies are mixed again today, and Gold is getting sold again, while the price of Oil climbs to $38.

For What it’s Worth.. My good friend, Dennis Miller, sent me this last night and after reading it I just knew it belonged in the FWIW section today. So, let me set this up. And it’s going to take some participation from you.

“PowerLineBlog” recently held a competition for $100,000 for whomever could most effectively and creatively dramatize the significance of the federal debt crisis.

Several entries have gotten a lot of attention, but the one that has gone most viral so far is ‘The Doorbell.’ If you haven’t yet seen it, watch it here.

It runs just under one minute:


Chuck again. yes, now that’s what I call a dramatization.. And so truthful! I’ve got to send this to my kids! So, they see that what I’ve been warning them about isn’t just their grumpy old dad, complaining about rising debt, when it doesn’t make a difference in their lives.. I tell them all the time, either listen to me, or I’m cutting you out of the will. And then they laugh hysterically, because I have nothing in the will to give them, just some reminder notes that I was the one that tried to warn them about rising debt. HA!

Currencies today 3/10/16. American Style: A$ .7485, kiwi .6670, C$ .7535, euro 1.0970, sterling 1.4205, Swiss $1.0017, . European Style: rand 15.1865, krone 8.5150, SEK 8.46, forint 282.75, zloty 3.9295, koruna 24.6483, RUB 70.29, yen 113.55, sing 1.3816, HKD 7.7635, INR 67.06, China 6.5127, pesos 17.75, BRL 3.6873, Dollar Index 97.38, Oil $37.95, 10-year 1.86%, Silver $15.30, Platinum $975.85, Palladium $561.20, and Gold.. $1,250.71

That’s it for today.. No news yet from the ECB, so I’m going to have to go to press without something from the ECB. No worries, we’ll talk about it tomorrow.. So, today is my good friend, Rick Baur’s birthday.. Rick is about 15 years younger than me, but we haven’t let that get in the way of a good friendship. He’s one of my spring training buddies who will be here next week! Chuck, Rick, Duane and Kevin will all be here for St. Pat’s Day. hello Uber? Sam and Dave take us to the finish line today with their song: Hold On.. I know you youngsters reading this have no idea who Sam and Dave were.. and that’s a shame. Speaking of Shame, my friend, Ed Bonawitz, sent me a note yesterday saying, “Shame, shame I know your name” and blasting me for not mentioning that George Martin had died. George Martin who produced a lot of Beatles hit records was a genius when it came to music arrangement.. OK, I’m so tired, I need to get going, as I have to go to the infusion center this morning.. I hope you have a Tub Thumpin’ Thursday and remember to Be Good To Yourself!

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