The Fed Says No, To A 50 BP Rate Cut!

A Pfennig For Your Thoughts

June 26, 2019

* Talk of a trade agreement allows the dollar bugs to return…
* What the heck is going on with the honker?

Good Day…. And a Wonderful Wednesday to you! What a beautiful day here yesterday, the sky was a blue umbrella, the sun was shining, and it warmed throughout the day. No rain, in there at all! YAHOO! I sat outside last night watching my beloved Cardinals blow another game… UGH! But the night was nice, the company even better, so it wasn’t all bad! I don’t know how much I’ve got to say today, so let’s just get started and see where we go, eh? The Rolling Stones greet me this morning with their song: Can’t You Hear Me Knocking? (some of Keith Richard’s best guitar work here)

Well, well, well…. What have we here? Yesterday, the Fed Heads hit the streets by large numbers, to talk and give their opinions… Why anyone would listen to them any longer is beyond me… But currency traders did, and what the Fed Heads were telling the markets is that we can forget at 50 Basis Points (1/2%) rate cut… Shoot Rudy, even the biggest dove of them all, James Bullard, President St. Louis Fed, said a 50 Basis Point cut would be overdone….

The currency traders took these messages at face value, and decided to take some profits in the currencies, for the run up had been pretty swift and strong… What the currency traders were missing from the Fed Heads talks is that while the Fed Heads said that a larger rate cut was out of the picture, they didn’t say that no rate cut was on the docket… So, a rate cut is still on the docket, albeit the 25 Basis Points I’ve talked about for a month now…

So, the currencies backed off their lofty levels, and Gold was only able to eke out a gain of $3.80 on the day… A couple of weeks ago, I would have been a happy camper to see a $3.80 gain in Gold, because that’s not what we were seeing then. The exact opposite was hitting the shiny metal nearly every day. But a $3.80 gain now is sort of MEH… Not after the daily moves we seen lately!

OK Yesterday I told you that today I would talk about the Hong Kong Dollar (HKD) or (honker)… I don’t know if you’ve been checking the currency roundup or not, but something strange has been happening to the honker… It’s gained steadily for a couple of weeks… at first I didn’t believe what I was seeing, and wrote it off as the blip like we saw last year, when the honker rallied big time, only to have it come back to reality soon after…

But that’s not what’s going on here this time… And the thing that has me scratching my balding head is that the honker is rallying while the Hong Kong people are rioting in the streets… Major civil disorder is going on in Hong Kong, and the currency is rallying… Is that not strange or what? Well, yes it is… Oh, by the way, the honker is pegged to the dollar so its gains will be limited, but then the peg could always be broken, right?

This is a public service announcement…. I haven’t had the access to the Pfennig Replies box for over a week now, so if you’ve written me, asking me a question, and I haven’t responded… Now you know why! I was not just ignoring your emails… I suspect that soon this will all be corrected, and then I’ll be at my laptop all day, catching up on old email…

OK… Well, the economic data prints here in the U.S. are certainly screaming for a rate cut… Yesterday, was no different, with the Case/ Shiller Home Price Index coming in flat for April, after a few consecutive months of home prices falling… And the stupid Consumer Confidence Index for June dropped from 130 to 121… A HUGE drop, eh? … And then there was this…..

I’ll get to a real humdinger of a description of the economy from the Fed Heads in the FWIW section of the letter today, so don’t miss it! Until then I’ve got this little ditty for you to chew on regarding the economy…

The Richmond Fed collapsed in June to the lowest level since this survey began. Uh-Oh… And the Chicago region index printed negative again last month… I know I often tell you that these regional reports don’t seem to filter through to the National ISM report… But… the National ISM has been slipping in recent months… I’m wondering if… this month it slips below 50…

The Russian ruble was the only currency yesterday that didn’t see any slippage, and that’s because the ruble enjoys the highest interest rate in the industrialized world… And it doesn’t hurt things that the price of Oil added another buck to its price in the past 24 hours and this morning is trading with a $58 handle…

I was looking up the price of Oil this morning, and seeing rising, and right next to the price there was an opinion piece that was titled: Here’s why Oil’s outlook could be bleaker than expected…. I had to laugh, because here I am watching the price of Oil rise, and there’s an article about how its outlook is bleak… Made me laugh… But then that’s my sense of humor!

On the Trade War front… The markets are getting that warm and fuzzy feeling once again, from talk that Trump and Xi will meet and iron out a Trade agreement at the G-20 later this week… Really? I mean talk about people that love to have the rug pulled out from under them! Dolts! But this shiny happy people (REM) syndrome is helping the dollar fend off sellers…

The U.S. Data Cupboard has two pieces of real economic data for us today in the form of Durable and Capital Goods Orders for May… You may recall that April’s reports for these two were both negative, and I pretty much expect that to repeat itself for May…

On Friday this week, we’ll see the color of Personal Income and Spending… This will be a very important report, due to the fact that the economy seems to be teetering toward a recession and a drop in consumer spending could be the snowflake that sends the economy over the edge… We’ll see, and I’ll talk about it next Monday…

To recap… The Fed Heads went out in force yesterday, and talked the markets down from thinking that a 50 BP rate cut is in the offering at next month’s meeting, and that pushed the currency traders to take some profits, after the currencies had moved swiftly and strong in the past two weeks… The upcoming G-20 meeting will have Trump and Xi meeting, and the “shiny happy people” think something will come of the meeting, which is helping the dollar this morning…

For What it’s Worth…. Well… I’ve been saying for sometime now that a recession was coming, and I’ve also told you about 10 days ago, that I saw the Fed cutting rates in July by 25 Basis points (1/4%) and that was BEFORE their last meeting… Well, I was pointed toward this article by economist Danielle Di Martino Booth, and it’s about the next rate move and can be found here: https://www.bloomberg.com/news/articles/2019-06-25/powell-reiterates-rate-cut-case-has-risen-amid-economic-risks

Or, here’s your snippet: “Federal Reserve Chairman Jerome Powell said the downside risks to the U.S. economy have increased recently, reinforcing the case among policy makers for somewhat lower interest rates.

“Crosscurrents have reemerged, with apparent progress on trade turning to greater uncertainty and with incoming data raising renewed concerns about the strength of the global economy,” Powell told the Council on Foreign Relations in New York on Tuesday.

“Many FOMC participants judge that the case for somewhat more accommodative policy has strengthened,” he added.”

Chuck again…. Well, well, well… it now appears quite evident that the Fed will cut rates next month, pulling an about face from their March rate hike, when they talked about how the economy was so strong and robust! We’re the driving the economy with blinders on? I think so… folks… And we should trust them how much? None if you ask me!

Currencies today 6/26/19 American Style: A$.6982, kiwi .6682, C$ .7605, euro 1.1365, sterling 1.2684, Swiss $.9771, European Style: rand 14.3298, krone 8.5078, SEK 9.2650, forint 284.60, zloty 3.7497, koruna 22.4290, RUB 62.71, yen 107.71, sing 1.3540, HKD 7.8074, INR 69.28, China 6.8786, peso 19.17, BRL 3.8328, Dollar Index 96.23, Oil $58.94, 10-year 2.02%, Silver $15.27, Platinum $807.35, Palladium $1,535.52, and Gold… $1,405.58

That’s it for today, tomorrow and Friday… recall I have somewhere I have to go tomorrow morning, so no Pfennig… When I get back home, I’ll check on stuff and see if I need to Tweet anything… Otherwise, I’ll be back in the saddle on Monday morning! Friday, early evening, I’ll be attending a retirement party for two of my former colleagues… Ty Keough, and Mary Vance… I guess others are getting to that age too, eh? I sometimes think what I would do if I had to go back to work… And then I say… “nah can’t happen”! Shoot Rudy, it’s always noon before I get finished with my morning crossword puzzles! The Alan Parsons Project takes us to the finish line today with their song: Time…. I hope you have a Wonderful Wednesday, Tub Thumpin’ Thursday and Fantastico Friday! And Please Be Good To Yourself!

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