Traders Can’t Escape All The Rate Hike Rhetoric!

Rocktober 25, 2017

* Talk, talk, talk, about rate hikes…
* BOC meets today…
* A$ & kiwi’s rate advantage to narrow?

Good Day… And a Wonderful Wednesday to you! Game 1 of the World Series is in the books, and it was a pitcher’s duel, with the Dodgers coming out on top. That’s they way baseball should be played, as the game lasted 2 hours and 28 minutes.. Back in the day, the Great Bob Gibson pitched effectively, as throughout his career, the average length of time of games he started was only 2 hours 1 minute! The Turtles greet me this morning with their song: It Ain’t Me Babe..

I don’t know if I can stand much more of all this rhetoric going around about how the Fed is ready to hike rates again in December, due to the strong and robust economy… The newswires are full of them, and the cable news, not that I watch much of that, have one analyst after another talking about rate hikes…

And… Well, currency traders can’t escape all that rhetoric, and begin to believe it themselves, and soon they find themselves buying dollars And that’s what’s happened in the past 24 hours.. Yesterday, there was a calm before the storm, and now the storm is over the currencies and metals. Time to hunker down, or look to buy bargains…

The euro is not part of the currency selling, right now, as traders are still intrigued with what the European Central Bank (ECB) will talk about tomorrow, with regards to their promise to discuss the tapering of their bond buying program. However, should the ECB break their promise, the euro will be taken to the woodshed immediately, not passing Go, and certainly not collecting $200!

The Bank of Canada (BOC) meets today, and while I don’t expect the BOC to hike rates at this meeting, I do expect them to talk about the prospects of another rate hike by year-end. If they do that, then the Canadian dollar/ loonie could get back on the rally tracks and win back some of the ground it has recently given back. I read this morning that the Big Banks of: Royal Bank of Canada (RBC), Scotia Bank, TD, and Bank of Montreal (BMO), are all calling for a loonie rally into year-end. So, I’ve got some weight behind my thoughts this morning, eh?

Aussie dollars (A$) and their kissin’ cousin across the Tasman, kiwi, have really been sold in recent days, as the rhetoric about a U.S. rate hike heats up… These two currencies have enjoyed a nice rate differential to the U.S. dollar for some time now, and IF the Fed does hike rates in December it would narrow that positive rate differential for the A$ and kiwi… So, one would think that IF Chuck’s scenario for interest rates in the U.S. come to pass, then the selling in these two currencies would be reversed very quickly… So, there’s your challenge for the time being… I’m just saying…

What IF I’m right? And I have no other thought than to think I am right, but what IF I am right, and the Fed doesn’t hike rates in December, and begins to discuss a reversal of their previous rate hikes? Then all this negativity towards the currencies and metals would also be reversed, thus making the prices today and in coming days, bargain basement prices… And if I’m wrong… Well, I guess we do have to talk about that, because, I’ve been wrong before, or ended up being right, but much later down the road, which is the same as being wrong.

And I do see a scenario where Fed Chair, Janet Yellen, sees this meeting as her last opportunity to… wait, a minute Chuck, you don’t want to go down that road this morning, do you? I guess not… Thanks for saving me, because I almost said things like, no wait! You almost slipped up again, you dolt! Come on now, move along…
And China is preparing to sell $2 Billion of dollar denominated bonds, in an effort to gain more status in the credit markets.. I’m not sure I know why they decided to denominate the bonds in dollars, instead of renminbi, except to make them more acceptable by institutions that have bylaws that forbid them from buying foreign denominated bonds.

Gold got sold again yesterday, this time to the tune of $5.70 and closed yesterday at $1,275.30… And the shiny metal is down another $3 in the early morning trading today… And the other precious metals of Silver, Platinum and Palladium, are also getting sold, along with Gold. Yesterday’s trading in Gold saw 255,000 contracts traded… So the activity in the shiny metal remains strong… The most recent COT (commitment of Traders) report shows that speculators in Gold are long, and that commercial players are remaining short… Hmmm… The way I see it, is that we need for the two players here (speculators and commercial players) to switch positions… Oh well, it’s a thought any way…

The U.S. Data Cupboard finally gets to show off some real economic data today when it will print September readings of Durable and Capital Goods Orders… These two pieces of economic data have not been really strong in some time, but if the forecasters are correct, that will change with this month’s print. Of course, as I always say, one swallow doesn’t make a summer, and one good data print doesn’t make a trend, but that won’t stop the markets from pointing to the data as their proof that they are right about the economy.. UGH!

The Data Cupboard will also have the New Home Sales data for September today.. I’m not a “housing expert” , but would have to think that with what’s going on right now, that home sales should begin to slide…

To recap… All the rate hike rhetoric is driving Chuck crazy, and has the dollar swinging its mighty hammer again this morning. A$ and kiwi are getting sold more than the other currencies because the markets think the positive rate differential that these two have held VS the dollar for so long will narrow. Gold got sold again, and is getting sold this morning too. UGH! And Chuck talk about what will happen if he’s right about rate hikes…

For What It’s Worth… Well, longtime readers, Bob, was at it again yesterday, and sent me a link to this article that was very enlightening… It’s about Citi and Merrill’s derivative businesses in 2008 and now.. And it can be found here: http://wallstreetonparade.com/2017/10/two-of-the-biggest-bailed-out-derivative-banks-citi-and-merrill-get-fined-for-breaking-derivatives-rules/

Or, here’s your snippet: “Over the past month, with little media attention, both Citigroup and Merrill Lynch have received fines from regulatory bodies for failure to properly report their trading in derivatives – an opaque trading arena that played a significant role in bringing down both firms during the financial crisis. As reported by the Government Accountability Office (GAO) in 2011, Citigroup received $2.5 trillion in cumulative, secret low cost loans from the Federal Reserve during the 2007-2010 financial crisis while Merrill received $1.9 trillion. These loans, many at almost zero interest rates, were made without the authorization or awareness of Congress. (See GAO chart below.) The loans to the two firms were on top of the publicly disclosed and Congress-approved TARP bailout funds.

Significant portions of the money loaned to Citigroup and Merrill Lynch were authorized by the Federal Reserve to be funneled to the broker-dealer subsidiaries of the firms in London – where it found its way into pursuits that remain undisclosed to this day.”

Chuck again… the snippet doesn’t really tell the story in this article, so make sure you 1. sit down, 2. put away the sharp objects, and 3. click on the link above for “the rest of the story”…

Currencies today 10/25/17… American Style: A$ .7703, kiwi .6885, C$ .7880, euro 1.1770, sterling 1.3220, Swiss $.9920, … European Style: rand 13.7376, krone 8.0115, SEK 8.2218, forint 263.60, zloty 3.5923, koruna 21.7261, RUB 57.52, yen 114.16, sing 1.3627, HKD 7.8045, INR 66.07, China 6.6631, peso 19.21, BRL 3.2412, Dollar Index 93.87, Oil $52.32, 10-year 2.45%, Silver $16.86, Platinum $915.49, Palladium $960.73, and Gold… $1,273.43

That’s it for today… the warm weather has gone! It’s downright chill-city out there this morning! I made our airline reservations for my January trek to S. Florida yesterday. I have to wait until January 9th this year to head south.. UGH! Our Blues get back on the ice tonight, with a home game (they’ve been on the road so much to start the year!). Let’s Go Blues! Little Braden stayed with us last Friday night, and I kidded him when he got here, saying, “you’re here again? You might as well move in with us”, and he said… “OK!” I laughed out loud! I’m meeting one of my dear friends at lunch today, I can’t wait to see her! The late, great George Harrison takes us to the finish line today with his song: What Is Life.. And with that I’ll send you on your way to having a Wonderful Wednesday, and remember to Be Good To Yourself!

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

 

Chuck Butler recently joined the Aden Research Group, a research center led by writers and market analysts Pamela and Mary Anne Aden. The Aden Research Group publishes three newsletters:
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