Risk Aversion Fades.

* Risk Aversion fades.
* Kiwi is best performer overnight!
* Fed minutes reveal split.
* Gold & Silver continue to gain.

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

Good Day. And a Tub Thumpin’ Thursday to you! Finally! A good restful night’s sleep for yours truly! I wish I knew what I did to bring that on, for if I did, I would bottle it, and do the rinse and repeat every day! For I know that I did nothing different, ate my usual meals, and had the usual nap in the afternoon. Oh well, I feel refreshed this morning, and that’s a good thing because there’s a day game at Busch today. wink, wink. The Beatles greet me this morning with their song: We Can Work It Out. I heard a great old 70’s song on the radio on my way to work today. Dead Skunk In The Middle Of The Road. It’s a pretty funny song.

Well, the Risk Aversion that weighing so heavily on the markets the first two trading days of this week, has backed off a bit today. Japanese yen has lost ground, the Dollar Index is a bit softer, the U.S. Treasury 10-year’s yield has risen a bit to 1.38%, and Gold is flat this morning. All signs that the Risk Aversion has faded a bit, but will it be enough to push the currencies higher today, given that tomorrow morning we’ll see the color of the U.S. labor market for June? I doubt it. But, there’s one currency overnight that really got on the rally tracks for a ride. The New Zealand dollar pushed higher yesterday and overnight, gaining more than 1full cent!

So, what got into the New Zealand dollar/ kiwi? For a while there, we saw the pound sterling owners crossing their pounds into Swiss francs, but I think the smarter ones are crossing their pounds into kiwi, and the Aussie dollar (A$), where they can at least add some yield to their holdings. The pound has lost 12% to the A$, and even more to kiwi so far, and I don’t think it’s going to stop here. Then add in the news from New Zealand, where Reserve Bank of New Zealand (RBNZ) Deputy Dawg, I mean Deputy Gov. Grant Spencer, said that “further interest rate cuts could pose financial stability risk.” Don’t you just love it when a Central Banker has that V-8 head slap moment and realizes what they’ve done? At least the RBNZ is admitting that they just now realized what cutting interest rates to the bone can do to an economy. Oh well, at least he figured it out before rates went to zero, and negative.

The RBNZ next meets on August 11, so more than a month from now, and there will be lots of data, and words spoken between now and 8/11, so stay tuned for more gyrations of kiwi.

Pound Sterling/ pound, recovered a bit yesterday and in the overnight markets, which was good to see, as the rot on the pound’s vine has been exposed to too much sun recently. A more than 10% loss to the dollar, and the euro seems to be overdone to me. I thought the pound would get hammered if BREXIT became a reality, and it did, but the move was so swift, and strong, there had to be some pull back at some point. And maybe that’s what we’re seeing today.

The price of Oil jumped up more than $1 in the past 24 hours, as the gas glut here in the U.S. is getting a workout, given the heat in the country right now. It’s supposed to be 97 here today! WOW! And the proxy for the Petrol Currencies, the Russian ruble, is back on the rally tracks this morning. I read a report yesterday that talked about how Russia announced that they had been buying Chinese renminbi as a diversification of their FX reserves which consist mainly of euros and dollars. Just another step for the Russians to get into bed with the Chinese and the anti-dollar stance.

Speaking of the Chinese. Oh woe are Chinese renminbi holders that thought that the renminbi was a One-Way Street of currency appreciation. It may have seemed like that a couple of years ago, but not so much today, unless that One-Way Street is currency depreciation! I truly expect the Chinese to announce additional reserve ratio reductions, and more stimulus in the near future, in response to the world closing ranks due to the BREXIT fears.

The Big News from yesterday was the Fed’s Meeting Minutes (FMM) from their June meeting when they left rates unchanged and shocked a lot of people in the markets who for some reason (could it have been all the rate hike rhetoric by Fed members leading up to the meeting?), thought the Fed would hike rates. So, the markets wanted to see what the Fed members had to say behind closed doors. Because when we get behind closed doors, then she lets her hair hang down, Oh no-one knows what goes on behind closed doors! And you thought I was just a rocker! HA!

Seriously though the fed is having some second thoughts about their rate hike calls for 2016, and it was revealed in the FMM yesterday. There were even a few Fed members sitting around the table, telling their colleagues that things in their regions aren’t looking so peachy. WOW! And these minutes were all taken before the BREXIT results were known! The fed members have to be thinking that even if tomorrow’s Jobs Jamboree shows a recovery of the jobs numbers, that they need to be on the lookout for further fallout from the BREXIT result. Speaking of the Jobs Numbers, there will be something in the numbers this month that should help and that is the 40,000 Verizon workers that were back on the job in June.

Any way you roll the dice, the fed members are on hold with regards to rate hikes. I saw a quote yesterday by Marc Faber, Mr. Gloom and Doom, and he said that the Fed will need to implement another round of QE before hiking rates. Hmmm, let me see now. Isn’t this the same thing I told you in January of this year? Maybe Mr. Faber just got that copy of the Pfennig on his desk? HAHAHAHA!

Longtime readers will recall this discussion I’ve had on numerous occasions, and that is, that we as a country, would be better off if we never had the Fed, a Central Bank and Planner. Yesterday, a dear reader sent me a note and asked me this question: “Can anyone explain to me why we need Central Banks? We can never throw them out. At Least Great Britain got to vote itself out of a mess somewhat like that!.”

I talked at length yesterday about U.S. Treasury yields across the curve, and wondered out loud about if the U.S. Treasury market could go negative with regards to yield. I then ran across a thought from Deutsche Bank who estimates that “if the 10-year Treasury hits 1%, we’ll pretty much be wherever it is from whence there’s no return.” That’s less than 40 basis points from where we are today. AYE, AYE, AYE! I can hear the rock group, Kansas, playing their song Point of Know Return. Yes, they just had to change the No Return to Know Return. But it all begs the question. How long to the point of no return?

Well, I told you yesterday that I thought the U.S. Trade Deficit would widen in May as the dollar was stronger in May than it was in April, when it posted a $40 Billion Deficit for the month. And I was correct! The U.S. Trade Deficit for May widened to $41.1 Billion. My take from this is that exports were more expensive, so they faltered abroad, while imports were less expensive, and they grew in size. But overall, the deficit on a quarter to quarter basis is about the same, so there will be not net gain to 2nd QTR GDP VS the 1st QTR from Trade. And my GDP Tracker has somehow jumped to 2.4% for the 2nd QTR. Still below 3%, and marking another year below 3% growth. And I still don’t believe that GDP is the best way to get a gauge on our economy. Final Sales would be my choice, if I were king!

Today’s U.S. Data Cupboard , as the ADP Employment Report, which is supposed to give us an indication of tomorrow’s Jobs jamboree outcome.. Well, the ADP consensus is at 150,000. while that would be better than last month’s 38,000, it would be more in line with the steady fall in jobs from 5 months ago.

Gold posted its high for the day yesterday morning, when it was up $17, but that gain couldn’t hold, and Gold’s price faded as the day went on, closing up just $7 on the day. Gold is flat today in the early morning trading. Silver also had a day when it saw its high price of $20.58 and then faded as the day went along, closing up 14.5-cents to $20.055. That’s a long way from $20.58, but that’s the way the cookie crumbles when you have the price manipulators able to drive the prices of the metals down whenever they feel like it. I will say this though, I do believe that the price manipulators’ ability to drive the prices down is becoming more difficult for them, and the Chinese Shanghai Gold Exchange (SGE) is having a lot to do with that, as it’s a physical metal market only. Now, if would just obliterate the paper trades here in the U.S. !

To recap. Risk Aversion seems to have faded this morning, as the yen has given back a full figure, the 10-year yield rose to 1.38%, Gold is flat, the dollar index has lost some ground, and traders are pushing some currencies to higher levels. The New Zealand dollar / kiwi is one of those currencies rallying 1 full cent overnight as pound holders are switching to kiwi and Aussie dollars (A$), and RBNZ Deputy Dawg, Spencer, was quoted as saying that “further interest rate cuts pose financial instability”. or something like that, as he had a V-8 head slap moment. Gold closed up $7 yesterday, but was up $17 at one point of the day, and the same for Silver with its high price not being able to be held. The U.S. Fed’s Meeting Minutes revealed that some fed members aren’t feeling so peachy about their region’s economy’s performance, and that was before the BREXIT results!

For What it’s Worth. I mentioned this above, and so I thought I would dive further into the comment by Marc Faber regarding the need for another round of QE. you can read the whole article here: http://www.foxbusiness.com/markets/2016/07/05/faber-says-another-round-qe-ahead.html

Or Here’s your snippet: “Regarding the confidence, I’m not so sure because if you look at the performance of treasury bonds, they would indicate that there is a sense that the economy’s weakening and that there are problems in the financial system. Also if you look at the performance of European bank stocks, they are horrible performers,” Faber told the FOX Business Network’s Dagen McDowell.

He then predicted central banks’ reaction to Brexit globally.

“Clearly Brexit means more money printing by central banks; They will continue to intervene. And I think before the year end we’ll have some form of QE4 in the U.S.”

Chuck again. I liked something else he said in the interview, and that’s when he responded to the idea that the Fed members are attaching a low probability to the risks of a potential U.S. Recession in 2016. Faber responded: ” The Fed was fast asleep ahead of the 2007-2008 recession. So the fact that they assign a low probability to a recession doesn’t give me any comfort at all.” You tell ’em Marc!

Currencies today 7/7/16.American Style: A$ .7520, kiwi .7222, C$ .7730, euro 1.1080, sterling 1.3015, Swiss $1.0235, . European Style: rand 14.6725, krone 8.4550, SEK 8.5475, forint 285.19, zloty 3.9950, koruna 24.4035, RUB 64.03, yen 101.10, sing 1.3480, HKD 7.7585, INR 67.38, China 6.6816, peso 18.68, BRL 3.33, Dollar Index 96.06, Oil $47.99, 10-year 1.38%, Silver $20.14, Platinum $1,086.20, Palladium $606.57, and Gold $1,366.50

That’s it for today. I sure could use a cake donut this morning. Cardinals lose again last night, what an awful season of starts and stops. And now the injuries are piling up. UGH! Two weeks until my summer vacation. And yes, I’m counting the days! But I won’t count them down here each day that would be too self-centered on my part! HA! And this is a first for me! The Beatles greeted me to start the day, and the Beatles take us to the finish line today with their song: The Long And Winding Road, which is very appropriate for the end of a letter, eh? We took a long and winding road to the finish line as we do every day. It’s a Tub Thumpin’ Thursday, and I got a good night’s sleep, therefore, it’ll be a good day! I hope you have a Tub Thumpin’ Thursday, and Be Good To Yourself!

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