The Fed Learns A New Word!

A Pfennig For Your Thoughts

May 3, 2018

* Trade War talks heat up again…
* Gold finds its way through the gauntlet!

Good Day… And a Tub Thumpin’ Thursday to you! I woke up this morning, and thought it was Friday, so… I went back to sleep! UGH! then I woke up in a panic that I had overslept, as it was actually Thursday! Double UGH! I got to see a very well played game yesterday, with the Cardinals pitcher, Carlos Martinez, impersonating Bob Gibson, as he threw 7 shoutout innings and hit a home run! It was sunny, warm, and under a blue umbrella sky, I sat there watching day baseball, with friends… As the old commercial used to say: It doesn’t get any better than that! David Bowie greets me this morning with his song: Waiting For The Man… I watched a documentary the other day about David Bowie… He was quite the showman, so creative, and a very good songwriter…

The Dollar continues to have its way with the currencies, the euro lost the 1.20 figure yesterday, the Aussie dollar (A$) gained back about 1/4-cent and the rest were either traded in very tight ranges, or slipped even more. There does seem to be a tourniquet wrapped around the currencies at this moment, as Trade Talks come back into focus…

The fears of an unscheduled rate hike at yesterday’s FOMC meeting, were put to rest when the Fed decided to keep rates unchanged, but set the table for a rate hike in June… I’m really surprised by the fact that the Fed is able to keep hiking rates, i thought by now, this whole rate hike cycle would have run its course, and the Fed would be contemplating a reversal of previous rate hikes…

The U.S. economy continues to show signs of wanting to circle the bowl, but then somehow doesn’t find the bowl. I’m really shocked that this charade continues… But then, when have I not been so ahead of the curve on things? HA! Seriously though, this doesn’t bode well for the currencies and metals… But I’m not changing my view, just the timing of it… I’m still convinced that the U.S. economy has run its course for this growth cycle, as muted as the growth was, it has run its course, and if the Fed Heads can’t see that, with their 1,000’s of economists, and they want to keep hiking rates, then those are just rate hikes that will have to be reversed when Humpty Dumpty finally falls off the wall…

I do have to point out something that was said by Fed Chairman Powell yesterday… The Fed statement added the word “symmetric” as a qualifier to its inflation target. Fed officials have said this means inflation can move above or below target from time to time. Are you thinking what I’m thinking, if so, I feel sorry for you, but what I’m thinking is that Jerome Powell was reading his Reader’s Digest and the word of the month was Symmetric, and he thought, “how can I incorporate that word into my Fed Statement”? HAHAHAHAHA!

Gold found its way through the gauntlet of more than 350,000 contracts yesterday, to gain $1.00… That’s right I said one dollar… Everyday, Ed Steer prints a graph of the dollar movements from the previous days, and every day I look at and I can pinpoint when the short dollar paper trades hit the market by bundles, for the drop is so pronounced and at one time. The price manipulators are so brazen now that they don’t need to spread out their short paper trades, just throw them all at the market at the same time and watch the drop…

And the dollar trading in the Dollar Index pretty much goes the same way, with the dollar buying happening in bunches, as the Plunge Protection Team (PPT) continues to hold the key to dollar strength or weakness…

Now, if the currencies were seeing their respective economies growing like weeds, and their respective Central Banks were to hike rates, like the Fed, then they could muster enough strength that they could drive the PPT out of the markets, and it would be all about fundamentals again, and the respective currencies would be getting bought on those fundamentals…

But, the currencies’ economies don’t have their back… It looked like the Eurozone economy was coming out of the dark ages, but the European Central Bank (ECB) continues to drag out the stimulus and negative interest rates, and until that changes, the euro will struggle, especially with the dollar getting bought.

Well, this certainly is the “volatility” within a trend that I’ve talked about, but in reality it was “engineered volatility” or “managed volatility” courtesy of the PPT, so it’s not an organic bout of volatility, which means that I’m having a problem figuring out when this volatility within the weak dollar trend is going to end. But it will… eventually, and when it does, we need to be ready to strike!

Well, I mentioned above that the Fed’s FOMC Meeting ended with no rate hike, but some table setting for a June hike. In their statement the Fed Heads acknowledged that inflation was rising, and that it had hit their target rate of 2%. The Fed Heads also made a point of telling the markets that they will not panic should inflation continue to rise. Wait, What? If inflation was growing like a week, wouldn’t that be the time TO PANIC?
I shake my head in disbelief of the things that these people that should know better, say… So, now we have more than a month of reading and listening to pundits talk about the rate hike in June… Blah, blah, blah… It’s going to be so much fun… NOT!

The U.S. Data Cupboard yesterday had the ADP Employment Report for April, and it showed that 204,000 jobs were added in April, which is much better than the paltry 103,000 in March, but let me remind you that last month’s ADP report showed 241,000 jobs created in February, and the BLS said only 103,000, so unless this data begins to align with the BLS Jobs Jamboree, then I’m not going to pay attention to it any longer!

The Data Cupboard today has some goodies for us… First up is a real economic piece of data, Factory Orders for March, expect this data to be basically unchanged and remain at 1.2%… Then we’ll see the data print that has been lagging, Productivity for the first QTR… Productivity is supposed to measure the growth of labor efficiency in producing the economy’s goods and services. But in layman’s terms… it’s how much work you’ll do for the same wage… The jobs increases have brought down the productivity levels here in the U.S.

To recap… The dollar continues to push the currencies around, but Gold was able to eke out a $1 gain (Big Deal, rigtht?) The Trade War talks are heating up again, and this could lead the currencies right back to pushing the dollar around. The Fed kept rates unchanged but set the table for a June rate hike… Chuck does a mea culpa regarding this thought that the Fed would be contemplating reversing the rate hikes by now…

For What it’s Worth…. I mentioned today that the Trade War talks were heating up, and it appears that China is the one turning up the heat. This article talks about how China is reacting to the tariffs, and it can be found here:

Or, here’s your snippet: “Beijing sent the first messaging salvo ahead of the Steven Mnuchin-led delegation to China (which will engage in trade talks over May 3-4) overnight when the PBOC fixed the yuan sharply lower than many expected. The signal was clear: push us hard enough, and we may just launch another devaluation. Or worse.

A little while later, Beijing did its best attempt at managing expectations, when it said that it’s “unrealistic” to expect to solve all issues between the U.S. and China at a single meeting, given the economic sizes of the two countries and their complex economic and trade relationship, foreign ministry spokeswoman Hua Chunying says at daily briefing.

While Hua tried his best to pay the diplomatic “good cop”, saying it was in the mutual interest of both countries to solve trade issues through consultation, just a few hours later, China’s foreign minister Wang Yi was the bad cop, who warned that whereas China would welcome a successful outcome from upcoming trade talks with the United States, it is “fully prepared for all outcomes and will not negotiate on core interests.”

Then the “worst cop” emerged in the form of yet another, unnamed official who according to Reuters said that talks must be held as equals and be mutually beneficial, echoing E.U. president Jean-Claude Juncker, saying that Beijing would not yield to any trade threats from Washington or accept any preconditions for talks.

He then uttered the most explicit warning yet: “In the event of a trade war, we have a much greater ability to endure (the consequences) than the U.S.,” the official said.”

Chuck Again… I want to thank Ed Steer for pointing me to this article. Ed does such a great job of putting together news articles that affect the metals… I think that the last time I mentioned Ed Steer, and put his website in the Pfennig, I gave you the wrong web address, so in my attempt to rectify that here it is again:

Currencies today 5/3/18… American Style: A$ .7530, kiwi .7033, C$ .7790, euro 1.2975, sterling 1.3585, Swiss $ .9986, … European Style: rand 12.6132, krone 8.0543, SEK 8.8548, forint 262.30, zloty 3.5614, koruna 21.3524, RUB 63.69, yen 109.43, sing 1.3318, HKD 7.8495, INR 66.60, China 6.3616, peso 19, BRL 3.5274, Dollar Index 92.53, Oil $67.83, 10-yr 2.95%, Silver $16.50, Platinum $902.21, Palladium $973.10, and Gold… $1,312.50

That’s it for today and this week… Saturday is Cinco de Mayo, and Kentucky Derby Day! For years I’ve told readers the story of me in Cancun many years ago, and watching a street performer play his guitar, and me grabbing the microphone an begin singing along with his guitar playing, and Cinco de Mayo always reminded me of that time… Once a performer, always a performer… That was a great day yesterday at the ballpark. And now the Cubbies come to town… And Saturday is also the wedding day for our good friend’s daughter.. So, the neighbors will all be there, and a good time will be had by all, I do believe! So, I’ll be busy this weekend… Hope you are too! The Hooters take us to the finish line today with their song: All You Zombies… one of the better 80’s music songs… I hope you can make this a Tub Thumpin’ Thursday, and remember to BE Good To Yourself

Chuck Butler
Creator & Editor of:
A Pfennig For Your Thoughts

) The Daily Pfennig is no longer published by EverBank and it is now published by Aden Research Group.