The Euro Becomes A Safe Haven Currency.

* Another mixed day for currencies and metals
* Yen is best overnight performer! .
* Stocks look iffy to start day.
* Aussie & Canadian GDP prints today .

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

Good day. And a Tom Terrific Tuesday to you! I was so pumped up about feeling half-way decent yesterday, that I totally forgot about Pfennig Tradition! That being, that I tell you at the end of the Pfennig on August 31st, or whatever the last calendar working day is in August, that I’ll see you in September. So, Welcome to September! The last full month of the Baseball season, the kids are all back in school, college football starts in earnest this week, and the NFL starts next week. September and October here in St. Louis, are the best weather-wise months in the year. So, we have that going for us here, and then before you know it, the Halloween stuff will be in the stores. But, I’m not going to push the calendar. No way! It goes too fast for me now! You’ve got to slow down, you move too fast, you’ve got to make the morning last.

Well, it’s another day of mixed results in the currencies and metals, with some up, some down, and the talk of a rate hike here in two weeks, and the price of Oil really bumped higher yesterday and throughout the night, adding $4 to its price since yesterday morning. Midnight Oil greets me this morning with their song: Beds are Burning, which is about a true story in Australia. Speaking of Australia. The Aussie dollar (A$) just can’t seem to catch a bid these days, and every day I look at the currency, first thing, and what now seems to be an everyday occurrence is staring at me with red numbers, telling me that the A$ is losing more value. With commodities, Global Growth, and world economies in the dumpster, it’s no wonder the A$ gets taken to the woodshed on a daily basis, but at some point that has got to stop. You can only push down a currency like the A$, that has decent fundamentals and a somewhat better than the average bear interest rate, forever. Or, at least I don’t think you can!

The euro is stronger this morning, marking two consecutive days. Today’s strength is brought to us by the Eurozone Unemployment Rate dropping to 10.9% in July from 11.1% in June, which is the lowest level since the early months of 2012. 10.9% isn’t exactly the greatest level, but it’s still better than the “real unemployment rate” here in the U.S. which according to John Williams at Shadow Stats is 23%… But never mind that for now, as the markets don’t pay attention to what John Williams tells us, even though they should. This was supposed to more about the euro, that the hedonically adjusted U.S. data. Most of the Unemployment problem in the Eurozone comes from the Club Med countries. (Spain, Italy, Greece) In fact, in Spain the Unemployment Rate is 22.2%, hmmm. last time I checked, 22.2% was a better Unemployment Rate than 23%…

I told you yesterday, that the European Central Bank (ECB) will meet this week, on Thursday, and while I don’t believe ECB Gov. will convince ECB members that more needs to be done to promote growth, given the problems in China and Global Growth, there certainly will be “chatter”, and that might stick a fork in the euro’s rally here. But that’s two days from now, who knows what could happen before the ECB meets?

Shoot Rudy, we could see another cat thrown among the pigeons by China, or we could see a rogue data print, or whatever. Speaking of rogue data prints. Later this week, will be a Jobs Jamboree Friday, which is going to be interesting, given the fact that Friday is also the “get-away-day” for a 3-day, end of Summer, Holiday weekend. So, I can hear this. “Hello, honey, no, I’m not able to get away on Thursday, and I’ll have to wait, until after the Jobs report prints on Friday morning, and then some afterward to see how the markets are trading before I can get away” “Oh, dear, can’t you just forget that stupid Jobs report? I read this guy named Chuck Butler, and he says it’s all baloney anyway, come on, darling, pretty please with sugar on top” “Oh, OK, I’ll see if I can get a junior guy to deal with the Jobs report, we’re back on board to leave Thursday night” “Oh, honey, I’m so happy”.

Now, back to our regularly scheduled programming. Well, stocks are looking iffy again this morning. Yesterday all the stock markets of the world were in the red, except the Mexican stock market. And this morning, U.S. stock futures are down 2.5%, and the best currency performer overnight is the Japanese yen. So, some really strange things going on. For instance, I told you earlier that the price of Oil bumped higher to $48, but yet the petrol currencies like: Canada, Norway, Russia, Brazil, and Mexico are all getting sold this morning, so what’s up with that? A $4 gain in the price of Oil and not even a tiny wafer of buying in the petrol currencies? Isn’t Life Strange. A word we arrange, With no thought or care. Ahhh, the Moody Blues.

So, what’s up with the Japanese yen? We saw the yen rally strongly early last week, when the stock market here in the U.S. was unraveling, but as the stock market recovered, yen came back to reality. So, what’s behind this move now? It’s the same old story, traders still believe that yen is a safe haven. So, that’s the storyline I find on the Bloomberg this morning explaining yen’s strength. I just sit here and shake my head in disgust, for these traders wouldn’t know a safe haven if it jumped up and bit them on the nose! Japan is basket case, and nothing more, and certainly not a safe haven! The other safe havens, Swiss francs, and Gold, have their pimples, but at least they aren’t basket cases! The new safe haven that has developed in the last few weeks is the euro. Now that the problems in Greece have been sufficiently kicked down the road, the euro is being looked at differently than before. Sure, it’s still the offset currency to the dollar, now the euro has a different look about it. Reminds me of the Kinks song: A Well Respected Man. And he’s oh, so good. And he’s oh, so fine, And he’s oh, so Healthy in his body and his mind. He’s a well-respected man about town, Doing the best things so conservatively.

Canada and Australia will print 2nd QTR GDP reports. You’ve got to remember that this data only goes through June, and it’s really a look back into the rear view mirror if you will. I think traders will like the 0.5% VS last quarter, which would make 2% Year on year, in Australia, but not be so happy about the negative print expected in Canada of -1.2% VS last QTR. Canada, can’t escape the damage that the drop in the commodities’ prices have brought this past year. You name it, Canada mines it, produces it, and ships it. So, the Global Growth is suffering and that hurts exports, and then what they do export is at a bargain basement price. UGH!

In a follow-up to what I said yesterday about how I thought the Reserve Bank of India (RBI) would probably follow the rate cut in China with one of their own in the coming weeks, RBI Gov. Rajan, told reporters yesterday, that he can’t cut rates due to High Retail Inflation as opposed to the low wholesale price inflation that’s commodity driven, like the price of Oil. Hmmm. Well, I read this yesterday and immediately shifted focus to the currency screens, thinking that the rupee would rally on these worlds from the RBI Gov. But saw none. UGH! So, what gives? The currency gets whacked when it appears the RBI would cut rates to keep lock step with China, but when those rate hike thoughts are thrown out with the bath water, the currency doesn’t recover. UGH! I’m so sick of manipulated markets by Central Banks, aren’t you?

But wait! Not all is lost here, so don’t get so dejected, Chuck, things eventually work out, and it only took the traders of Indian rupees 24 hours to figure it out, and the rupee is on the rally tracks this morning.

While still on India. Indian 2nd QTR GDP printed yesterday, and did not expectations, nor did it even print as strong as the 1st QTR. UGH! 2nd QTR GDP on a year on year basis, was +7%, which in this day and age, you would think it would have delighted the markets to see such a “robust” GDP. I mean 7% for an economy the size of India is pretty darn good folks. But when you don’t meet expectations, well, something strange comes out in the wash. the 1st QTR growth printed at a 7.5% clip, so the markets are focusing on the fact that 7% is less than 7.5% (I know, I know I too was very impressed with their math skills! HA). Well, if that starts a trend, then we have something to talk about, regarding PM Modi’s “reform plans” that don’t seem to be working. But I prefer to think of it like this: 7% is greater than everyone else, so I get to stand on the mountain and say I’m king of the world in GDP!

The Chinese renminbi saw another very strong appreciation overnight. Again, this is a case of Isn’t Life Strange, as China actually saw their PMI print meet expectations at 49.7, but fall slightly from July’s print of an even 50. there was something that was announced though that I think will end up being a BIG Thing. The Peoples Bank of China (PBOC) announced that they will start requiring banks trading FX forwards (currency forward contracts) on behalf of clients to hold 20% of the past month’s sales as US$ reserves. There will be no interest paid on the reserves and the reserves will be frozen for a year. Now, at first glance this seems to be a constraint on trading, but in reality I think it will instead reduce the speculation that’s been going on. And once speculation dries up, then the renminbi (CNY) and CNH (deliverable) can get back to converging at a slow pace without outside influences.

The Brazilian real got whacked yesterday, when Brazilian President Dilma Rousseff, presented her budget to the National Congress. The Budget called for a 2016 deficit of $8.2 Billion, which amounts to 0.5% of GDP. This is first projected deficit ever in a budget for Brazil, and now puts a real question mark on the country’s ability to maintain their currency investment grade credit rating. This coming Sunday, I will have submitted an article for the Sunday Pfennig, outlining why I think the real is in trouble. And this Budget news would have been a great addition to that article, had I known about it before I submitted it to the power that be!

Oh, well, the trials and tribulations of a Pfennig Writer, eh? Oh, don’t worry about me. but these lead times really begin to get to me. For instance, today the September Review & Focus is being mailed to clients, but I put that one to bed two weeks ago! So, don’t be looking for any mention of the stock market gyrations last week, or the currency rallies and deflations. But without deadlines, and lead time, I would probably be running up against the printer’s deadline, and ticking him off, and everyone else, so better to have a drop date for me at least!

The U.S. Data Cupboard actually has something worth looking at today, and that is the National ISM (manufacturing index or PMI) for August. Just a review first. the manufacturing index printed at 52.7 in July, and it was just last year at the end of August when the index was as high as 58.1. So, when some dolt on TV says that the U.S. economy is stronger, just ask him how that is, when the manufacturing index has fallen from 58.1 a year ago, to 52.7 now? Well, the expectations for the August print is 52.5, so slippage to tiny, it’s not worth talking about. But that’s the expectations, let’s see what really prints, eh?

And Gold is stronger this morning, right now Gold’s price is up $7, but earlier it was up better than $8. the GATA folks sent me a message overnight, and it cracked me up. They quoted an article from the New York Sun written by Judy Shelton, where she says that “returning to a Gold standard would be less crazy than the daily weirdness of today’s Central Banking.” Whenever I hear the word “crazy” I think of Patsy Cline. singing the number one played song on Juke Boxes. Crazy, which was written by Willie Nelson! It also reminds me of early mornings on the trading desk at Mark Twain Bank, where we wouldn’t allow the lights to be turned on until 7:00 am. And my old colleague, Neil George, and I would talk about the overnight markets, probably argue about a few things, and listen to Patsy Cline.

According to the U.S. Mint. they sold 101,500 troy ounces of Gold Eagles, 20,000 ounce Gold Buffalo coins, and 4,935,000 Silver Eagles. And even with all this physical demand these metals hardly moved in August. UGH!

To recap. It’s another day of mixed results in the currencies and metals today, with some losers and some winners. The A$ leads the losers and the Japanese yen leads the winners this morning. Gold is up $7, and the price of Oil bumped higher by $4 to $48. It appears that there is some safe haven buying going on, with Chinese stocks once again getting whacked overnight, and the U.S. stock futures down at this point in the morning. The petrol currencies aren’t benefitting from the bump higher in Oil’s price, and Chuck thinks that’s just another example of how Life is Strange. And the Jobs Jamboree will take place at the end of this week, but who will be around to see it print?

For What It’s Worth. I found this to be very interesting, given that a couple of months ago, I was interviewed by the Daily Reckoning (DR) ( ) and asked if I thought the U.S. would experience a recession in the coming months. I said, Yes. So, now check this out from a Goldman Sachs economist. you can find the whole article here, but in reality the snippets tell you everything you need to know!

“When the VIX – an “index of volatility” in the S&P 500 stocks – hits “levels in the high-twenties to low-thirties” for extended periods of time, it’s usually an indicator that the U.S. economy is headed for a recession, according to a Goldman Sachs analyst.

VIX levels go back to January 1990. Since that time there have been three recessions. Average VIX levels in the first two recessions (1990-1991, 2001) were 25 and 26 respectively,” Goldman Sachs analyst Krag Gregory said. “The worst of the worst was of course the Great Financial Crisis. Average VIX levels in the 2008-2009 recession were 34.

After a dramatic spike during last week’s turbulent period, the VIX landed at 26 at the end of the week.”

Chuck again. OK, the VIX is a volatility index that is the popular measure of implied volatility of the S&P 500 index options. And the thing I always remember about the VIX is that it is referred to by many as the “fear index or gauge” Now, just like I always say that stock market strength is not an indicator of a strong economy, the vice versa holds true too. But I just thought this played well in the sandbox with my thought about a recession on the way in the U.S.

Currencies today 9/1/15. American Style: A$ .7055, kiwi .6335, C$ .7570, euro 1.1245, sterling 1.5340, Swiss $1.0380, . European Style: rand 13.3645, krone 8.3195, SEK 8.4490, forint 279.60, zloty 3.7645, koruna 24.0280, RUB 64.95, yen 120.05, sing 1.4115, HKD 7.7500, INR 6335, China 6.3752, pesos 16.84, BRL 3.6480, Dollar Index 95.70, Oil $48.37, 10-year 2.17%, Silver $14.56, Platinum $ 1,003.00, Palladium $589.18, and Gold. $1,141.02

That’s it for today. Well, yesterday, I thought I was doing just fine, I went home ate lunch, sat down in my chair, and fell asleep for 4 hours! WOW! I guess I wasn’t doing just fine! But I was after I woke up! Then I couldn’t get to sleep last night, and stayed up to listen to my beloved Cardinals come back and beat the Nationals 8-5. Our stock guru, Bill Ervin, stopped by my office this morning to see if the “sky was falling”. I told him. Nah, just the usual same-o, same-o. But who knows? Maybe by the end of the day it might feel as though the sky is falling! I checked the weather forecast for Saturday, I know in St. Louis, that’s a dangerous thing to do, to plan on a weather forecast, but right now, the forecast calls for full sun and a high of 95! What a great day to have our annual summer blow out BBQ! It usually rains part of the day on our BBQ, but right now, no rain in sight, so I’m really excited about that! September is the month of the Big Boss’s daughter’s wedding. Erica is going to the chapel and she’s going to get married. I’ve known Franks daughters since they were born. So, it will be fun to be there for that! And what dolt I was yesterday, forgetting to wish my longtime friend, and former latte & bagel buddy, Michelle Boschert a Happy Birthday from Sunday! UGH! Sorry about that M! And with that, I’ve got to get out of your hair for today! Once again, late, late, late! UGH! I hope you have a Tom Terrific Tuesday!

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