Trump Says The Dollar Is Too Strong!

In This Issue.

* Trump comments deep six the dollar.
* Gold has another strong day!
* Brazil cuts rates 100 Basis Points!
* Aussie labor report continues to be strong!

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

Good Day. And a Tub Thumpin’ Thursday to you! Well, after nearly 4 months, I got to drive my car yesterday! Boy did I miss it! See? It’s the little things that make me happy! Remember when you first got your driver’s license and you took off in a car by yourself the first time? Remember the joy you felt, the freedom, the overall feeling of becoming an adult? Well, yesterday wasn’t the same, but it was close! The currencies saw some big movements yesterday on some comments by the President, so that’ll be front and center this morning, but first, I must document the song of the morning! The Moody Blues greet me this morning with their song: Isn’t Life Strange? A great morning song for sure!

Front and Center this morning, the conn that the dollar has held for several days, over the currencies, was thrown to the curb yesterday by President Trump. I’ll let the WSJ tell you what he said, and then come back with my comments. Well, the Wall Street Journal (WSJ) had this little ditty about President Trump yesterday.. “President Trump said the U.S. dollar “is getting too strong”: and he would prefer the Federal Reserve keep interest rates low. He went on to say that his administration won’t label China a currency manipulator in a report due this week.”

Hmmm, and the currencies responded by rallying VS the dollar. But not only the currencies, Gold led the precious metals higher, the yield of the 10-year Treasury dropped again (which means the price of the bond went higher), but the price of Oil slipped on the day, thus not making this an all-out assault on the dollar. So, the President wants a cheaper dollar, and no more rate hikes.. The WSJ went on to say that the President also mentioned, after he had his say about wanting interest rates to remain low, that he was leaving open the possibility of renominating Fed Chair, Janet Yellen, which is a shift from his position during the campaign. Hmmm..

Hey folks, I don’t make this stuff up. It was right there in a WSJ blurb they sent me yesterday. What do you make of this? I’ll tell you what I make of it. That the President, is using the old, you do this for me, and I’ll do that for you. I think they call that quid pro quo, or “this for that”. Do you think Janet Yellen got the memo? And if she did, what she thought about it? Mysteries that we would like to untangle, eh? I guess we’ll see in June, when the Fed is next expected to hike rates again.

Ok, enough of that, except to say, the euro took off, yen dropped below 109, and the Aussie dollar (A$) recovered a lot of lost ground. Gold added $12 to close at $1,286.60, and the 10-year Treasury’s yield dropped from 2.30% on Tuesday to 2.22% Wednesday. That’s a HUGE move in yield folks. take it from an old crispy critter like me that used to trade bonds!

The A$ got an additional boost overnight when their latest labor report was better than expected, with jobs created in March of 61,000 VS 20,000 forecast. And the increase included more full-time jobs than expected too! The Unemployment Rate remained Steady Eddie at 5.9%, but the participation rate increased, and that’s a good thing!

The Bank of Brazil (BOB) met yesterday, and they decided to up the ante on the rate cuts from 75 Basis Points that we saw in January, February and March, to 100 Basis Points (1%) in April. Last month, I wrote about how I saw the BOB pushing the rate cut envelope to 100 Basis Points, and looky there! That’s just what they did! This 1% cut brought the internal rate in Brazil to 11.25%… And I don’t believe the BOB is nearing a stop either! I would look for another 100 Basis Points in May, and by year-end, we could very well see the internal rate in Brazil below 10%, probably around 9%…

What about their inflation problem I hear you asking? Well, ever since the Olympics ended, inflation has been dropping, and is expected to continue to drop as the year goes on, even with lower interest rates! So, with the internal rate around 9%, and the expectations for inflation to be 4.5%, that still leaves 4.5% of “real interest/ yield” The real traders shrugged off the first couple of rate cuts here, but now that the BOB is serious about this, real traders are selling real again, and this is the selloff that I expected after the Olympics. It just happens to have come around much later than I expected to see it!

How long can this currency rally last, given it was just “words” that moved them higher yesterday? Well, in normal situations I would say not long, the currencies would need something else to keep the rally going. And with this being Easter week for the markets, I doubt that the currencies will hold their gains through today’s trading. You see, as of noon today, things, market wise, are going to become pretty thin, not only in the U.S. but Europe too. which will make this a “long weekend” for the markets, and that could very well bring about position squaring today ahead of the weekend..

For instance, last night the euro had gained quite a bit to 1.0680, but has already backed off overnight and this morning is trading 1.0645. And yen which had dropped below 109 is back above the figure this morning.

For what could the weekend bring us that we aren’t aware of? That’s the question in traders’ collective minds. That and the question around N. Korea, who suggested yesterday that “something big” could occur today. If we can get through today without any heightened geopolitical tensions, then the markets would calm down, with traders doing their position squaring, and that would mean the currencies gave back their gains.

But that’s a BIG IF when you consider that we never know what’s up N. Korea’s sleeve, or what comment the President might make that moves the markets.

One of my fave economists these days is Danielle Di Martino Booth, and yesterday she wrote an article titled: If an electorate falls in the forest, is their voice heard?… And that made me think of yet another time that the public wishes were ignored by the elected officials. I won’t bore you with the details of our “town meeting” while I was on vacation, but it’s just another case of the elected officials having their own agenda, which is not that of the voters.

Getting back to Danielle Di Martino Booth. I found that this short paragraph pretty much tells it all right now. here’s Danielle: “With each passing day, with every sun that sets over Washington DC, the risk grows that the U.S. economy will slide into recession. While confidence remains high, the euphoria has begun to wane replaced by fears that the gridlock that’s gripped politicians cannot be broken. As has been the case more often than not, the stock market is in abject denial while bonds are potentially jumping the gun, pricing in the worst potential outcome.”

Chuck again. Like I told you yesterday, I finished reading her book “Fed Up” while on vacation, and will have more and more stuff from her in the future. Consider yourself lucky! HA!

So, Gold added another $12.60 to its price that saw a nearly $20 gain the day before. While I think the larger jumps in price are warranted given my feeling that the price of Gold has been held down for too long, I cringe when I see it move like this. I prefer smaller moves that fly under the radar. But another jump in price today, and we could be looking at $1,300 for Gold, and that’s a price we haven’t seen in a month of Sundays!

What’s gotten into Gold I hear you asking? Well, as I explained yesterday, the heightened geopolitical tensions, have really put some wind in Gold’s sails. But the Uncertainty of everything right now is the real McCoy when it comes to reasons for Gold’s huge move in the past week. And now that N. Korea is adding to those geopolitical tensions, Gold could very well continue this run. In addition, I’ve got an article on Indian Gold Imports for the June wedding season in the FWIW today, so don’t miss that!

Well, the Singapore Monetary Authority (MAS) met last night, and didn’t make any changes to the trading band that the Sing dollar trades in.. The did tweak their comments about the neutral policy stance.. At the last meeting the MAS said, “a neutral policy stance will be needed for extended period to ensure medium term price stability” And last night they said, “A neutral policy stance is appropriate for an extended period to ensure medium-term price stability”.. So, did you catch the “tweak”.. it’s just two words. In the previous statement they used the word “needed”, and last night they switched to “appropriate”.

As the Chapman’s Ice Cream commercial used to say, “it’s a subtle little difference that makes all the difference in the world”. The change from “needed” to “appropriate” means they aren’t as tied to a neutral stance as they were before, and that could mean that should global growth continue to inch along in the right direction, we could see the MAS loosen their grip on the trading band going forward. The S$ rallied on this news.

Well, I’m going to veer from the beaten path here for a minute. One of the stories that came out of the meeting last week between the leaders of the U.S. and China was that President Trump said that he offered some softening of trade rhetoric if China would help bring N. Korea under control. And now I read where China has warned N. Korea that they would attack N. Korea’s facilities producing nuclear bomb if N. Korea crosses China’s bottom line. Hmmm, I’m reminded of what my dad used to always say to me. Chuck, China is a sleeping giant, you’ve got to hope they never wake up”. I’m just saying.

OK.. back to regular programming. The U.S. Data Cupboard was basically empty yesterday, as I told you, but today, we’ll see the color of the Producer Price Index (PPI) (wholesale inflation) for March, and it is expected to drop.. Hmmm. And then something that flies under the radar screen, Business Inventories. As I’ve explained in the past, inventories are a part of the GDP calculation, and so how they fare becomes important to a degree, and shouldn’t just be shrugged off as another piece of data that’s not worthy.

Tomorrow’s Data Cupboard will have a real piece of economic data in Retail Sales for March, and judging from what the BHI (Butler Household Index) tells me, this is NOT going to be a good month for Retail Sales. Auto Sales which buoyed Retail Sales for a long time, have fallen significantly. And now they don’t provide the underpinning to Retail Sales that they once did. There’s a good article on the Subprime and deep Subprime auto loans that Danielle Di Martino Booth wrote for Bloomberg, that can be found here:

To recap. The dollar lost its conn over the currencies yesterday when President Trump said the dollar was too strong, and that he wanted low interest rates. Gold gained $12.60 and the yield on the 10-year Treasure dropped to 2.22%. Chuck doesn’t think the currencies can hold their gains through the long holiday weekend, as position squaring will take place starting today. The Bank of Brazil cut their Selic Rate 1% yesterday, and Chuck thinks this is not the end of the rate cuts for Brazil. Aussie employment was strong again, with 61,000 new jobs created VS the 20,000 forecast, and the Singapore MAS left the trading band untouched, but did tweak their words in their statement.

For What it’s Worth. Well, I already told you what this is about, so, I won’t beat around the bush. This is found on Bloomberg, and can here’s your link:

Or, here’s your snippet: “Gold imports by India are said to have jumped almost seven-fold in March from a year earlier as jewelers stocked up anticipating a demand recovery during the wedding season that began this month and the auspicious Hindu gold-buying day of Akshaya Tritiya.

Shipments advanced 582.5 percent to 120.8 metric tons last month from a year earlier, according to a person familiar with provisional data from the finance ministry, who asked not to be identified as the data aren’t public. Imports dropped 20 percent to 716.4 tons in the year ended March 31. Finance Ministry spokesman D. S. Malik declined to comment on the data.

Indians buy gold during festivals and for marriages as part of the bridal trousseau or as gifts, and the nation imports almost all the gold it consumes.”

Chuck again. Well after a period of chaos in India after the demonetization, things are getting back to normal, and this surge in Gold imports is a good indicator of that! Remember, that with large numbers of Gold Imports like this, that it puts strains on supplies. And if we’re talking about a price discovery of just plain old supply and demand, then Gold should come out as the winner, winner, Chicken dinner!

Currencies today 4/13/17. American Style: A$ .7585, kiwi .7010, C$ .7557, euro 1.0645, sterling 1.2548, Swiss $.9962, .. European Style: rand 13.5447, krone 8.5555, SEK 8.9996, forint 293.20, zloty 3.9850, koruna 25.1130, RUB 56.89, yen 109.62, sing 1.3953, HKD 7.7737, INR 64.41, China 6.8937, peso 18.58, BRL 3.1398, Dollar Index 100.31, Oil $53.05, 10yr 2.23%, Silver $18.54, Platinum $973.43, Palladium $806.66, Gold $1,288.10, and SGE Gold. $1,282.71

That’s it for today. Finally! A good day for my beloved Cardinals who won 6-1 yesterday afternoon in the nation’s capital, and now head to NYC to play the Yankees.. What a classic baseball matchup, Yankees & Cardinals. The Yankees have won the most World Series in the American League, and likewise for the Cardinals in the National League. And our Blues won Game 1 of their playoff series with The Wild! YAHOO! That’s the way to start out on the right foot for the playoffs! The hockey experts are picking the Wild to win this series, I wouldn’t bet on it if I were them! Well, today I get to sit in a dentist’s chair, and get a broken tooth “fixed”. Not exactly my idea of a fun day, but then I love my dentist, so I have that going for me! HA! And then tomorrow is Good Friday. Well, I was both surprised and pleased to see that I had lost 4 lbs. while on vacation! It’s a Moody Blues themed day, as the Blue Jays which were a spinoff of the Moody Blues, with Justin Haywood, and John Lodge. And they composed what I consider to be one of my fave songs all-time. I Dreamed Last Night.. And with that, I’ll get out of your hair for today, and hope you have a Tub Thumpin’ Thursday. Be Good To Yourself!

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