U.S. Data Is Good. For Once!

* Attempted coup in Turkey…
* Currencies attempt to win back some ground .
* ECB to meet this week, that’s euro negative!
* Gold can’t find a bid.

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


Good Day. And a Marvelous Monday to you! What a beautiful, weather-wise, weekend here in the St. Louis area we enjoyed this past weekend. WOW! I’m teetering on the fence this morning, not sure if I’m going to have problems or not, so if I’m gone for a while, you’ll know why! HA! What a shame that more policemen were shot this past weekend, this time in Baton Rouge. Like I said last week, the fabric of our country is being torn to shreds. We cannot allow this to continue, period! I have to talk about something else. Steely Dan greets me this morning with their song: My Old School. And I’m never going back to my old school!

Well, on Friday we had the failed coup attempt in Turkey, that didn’t see the Gov’t retain power until Saturday, but that news of an attempt to take over the country by the military, sent the markets into a tizzy on Friday. I was pretty much out of it on Friday, and tried to read a bit to see what was going on, but couldn’t focus on the words, and decided to turn on the TV instead. The currencies were losing ground, and something that amazed even me, who has seen just about everything in the markets in my 43 years associated with investments, Gold couldn’t find a bid, in this time of fears that the U.S. could be losing their ally in the Mideast.

That was Friday. So, we flip the page to the overnight markets last night, and we saw some movement to reverse the Friday selling. But Gold still can’t find a bid, and I know last week I said that it didn’t bother me, and it still doesn’t, but I have to admit that it does bother me a little bit. Reminds me of my grandson, Braden, who heard his mom say to him, “Braden that’s not funny”, and he responded. “It’s a little funny”. Alright, back to the currencies, metals, economies and dolts.

Kiwi got smacked down last night when their latest print of CPI (consumer inflation) fell short of the Reserve Bank of New Zealand’s (RBNZ) expectations.. The RBNZ thought CPI would rise from May’s 0.4 % figure to 0.5%, but CPI remained unchanged in June at 0.4%, and that didn’t make kiwi traders very happy. See what’s going on here? Sheer madness, that’s what! What happened to the days when traders would be happy to see inflation so low? Yes, I know that deflation is what everyone fears these days, but to get all whipped up because your country’s inflation didn’t rise 0.1% is going a bit too far in my mind.

The poor euro, every time it seems to get its legs underneath it, they get tripped up and the euro is flat on its face once again. That’s where we find the single unit this morning, and the trip line for the euro now is the European Central Bank (ECB) meeting this Thursday. And I do believe there’s a problem with the ECB’s current bond buying program, that should they ECB address this on Thursday, and I think they will, it will be euro negative. UGH! You see, the ECB has basically run out of bonds to buy that qualify. So, if the ECB allows deviations to their qualifications, it widens the playing field of bonds that it can buy. That’s about as simple and basic as I can explain it, otherwise we would be talking about capital key purchasing metrics, and so on. So, just know that this would not be a week to think the euro will finally get its legs under it.

The price of Oil is $45.71 this morning, not much movement from late last week. The Oil supplies here in the U.S. were mixed last week, with crude oil supplies falling 2.2 million barrels from the previous week, but refined products (gas) grew at a faster rate and showed an increase of 1.2 million barrels. The chart from the EIA on the weekly changes of the Oil supplies looks like a heart monitor, up, down, up, down, up, down, and it goes on and on. the Petrol Currencies are looking for some clear direction in the price of Oil, and the price of Oil is looking for some clear direction in the Oil supplies, and it’s just not receiving it. UGH! What we have here is a failure to communicate!

And the yield on the 10-year U.S. Treasury sure has gone up quickly. 10 days ago, we were looking at a sub 1.30% figure and today the yield has risen to 1.63%… That would represent a huge drop in the price of the bond, so anyone looking to sell their so-called “safe haven” now would be taking a huge loss. But then you can’t say I didn’t warn you!

Did you hear about what happened in Singapore last week? The Southeast’s largest bourse, (stock market) shut down for technical problems last Thursday and didn’t open back up until last night! The SGX (Singapore stock exchange) kept telling the markets that it was going to reopen but then failed to do so. The CEO of the SGX apologized for the shutdown and said that recovery time must be faster.. Really? You think? Boy now there’s a new “Mr. Obvious”! The Singapore dollar didn’t get caught up in this mess in the SGX, which is a good thing.

The Brazilian real continues to push the currency appreciation envelope across the desk. I simple sit here and smile. Because if you go back to the Currency of the Month piece we did on real a month ago, you’ll find that I talk about how historically, the host country of the Olympics sees a nice bump leading up to the Olympics and during it. And while I’ll admit that not all of this movement in real to the positive side is about the Olympics, it doesn’t matter to me, because it’s moving in the right direction leading up to the Olympics.. I love it when a plan comes together!

Besides the lift the dollar received from the Turkey news on Friday, it was also basking in the sun of some pretty good data for once. And I like to think of the dollar bugs like fans of a perennial losing team, that sees its fortunes change one year, and suddenly they act like they’ve been there all along. Like I told an inebriated fan years ago, after his team had finally won a game VS my beloved Cardinals, and he was rubbing it in my face. “Hey! We beat your team like a rented mule for years, and you win one game, and you act like it’s the World Series?” OK, I was not a happy camper, and so it is with the dollar bugs that I have the same contempt for. You see Industrial Production, and Retail Sales have been so soft and weak for so long now, and you see one month of good results, and the dollar bugs act like this happens every month, and the dollar should be bought! UGH!

So, as long as we’re on the data from Friday, we might as well dive into the details. June Retail Sales surprised the markets with a strong print of 0.6%, and for once in a long time, the BHI gave me an incorrect indication, as it thought Retail Sales would be disappointing, but when the print beats the expectations by a large margin, disappointing would not be the word I used to describe the report! So, the U.S. Consumer stepped up to the plate and really spent in June. Graduation parties, weddings, and other things, I guess got them stirred up, and the U.S. Consumer showed that it had a pulse.

In addition on Friday, we saw U.S. Industrial Production in June, reverse May’s negative -0.3%, and posted a 0.6% print. Not too shabby. New Car production made up a big part of this growth. Hmmm. In the Retail Sales report they talked about how car sales were down in June, but now we see that new car production in June was strong. Something here doesn’t match up, right? Do you see a problem brewing here? I do.

Today’s Data Cupboard is basically empty, and that goes for this week pretty much too! There’s some housing data this week, and the TIC Flows this afternoon and after that, you’ll have to really go on a scavenger hunt to find some data that will move the markets.

Well, I talked above about how Gold can’t seem to find a bid. The shiny metal added $2.50 to its price on Friday, so basically flat, and is down $1.50 this morning, so again basically flat. the not for profit sellers, have this market all tied up right now, and it is being reported all over the globe right now that demand for physical Gold is sky high. Harrods’s the upscale store in the U.K. says that they are seeing more Gold buying since BREXIT, and that they are now launching an online Gold service! Reminds me of the Gold vending machine I saw in Las Vegas the last time I was there to speak (a couple of years ago now). I took a picture of it with my phone, but it never really depicted what it was that I saw. and that was a vending machine that instead of Cheetos and pretzels or candy bars, in the display window, it had Gold bars, of all sizes. Making it easy for the masses to buy physical Gold, that’s all! Gold is up 30% this year, and Silver is up more than 40%, I guess I shouldn’t be so touchy about not being able to find a bid right now, eh?

All I can say is just keep the physical buying going everyone around the world, and eventually the not for profit sellers will have to eat their trades.

To recap. The currencies are attempting to gain back some of the losses from the double whammy the dollar put on them last Friday, with the dollar’s support coming from the attempted coup in Turkey and some good data (for once!). Gold can’t seem to find a bid, but physical buying is strong all around the globe. But Gold’s price is up 30% this year, and Silver’s price is up more than 40%, I guess I shouldn’t be so touchy. Kiwi got smacked when their latest CPI report didn’t meet expectations. The poor euro can’t get its legs underneath it long enough for it to make a run, and the Brazilian real continues to push the currency envelope ahead of the Olympics. Man, if we had just known about how this happens to the host country’s currency ahead of time, we could’ve taken advantage of it. HA! They say you can led a horse to water.. right?

For What It’s Worth. I thought it was about time to bring you up to date with the latest goings on with the Corporate Bond Defaults that we talked about a few months ago the first time. You can find the whole article here: http://www.cnbc.com/2016/07/14/corporate-bond-defaults-cross-100-highest-level-since-crisis.html

Or Here’s your Snippet. “Corporate bond defaults have just crossed an ominous milestone.

Fully 100 companies have defaulted on debt, 50 percent more than for the same period in 2015 and the highest level since 2009, according to S&P Global Ratings.

Low oil and commodity prices, along with financial market volatility in the United States and abroad, have been the primary problems for the bond market this year. While the actual ratio of distressed issues is on the decline, the level of defaults has climbed.

While the defaults have been weighted heavily to the energy sector, analysts at S&P said there’s no guarantee things will stay that way.

“Over the past year, we have seen a strong increase in both the number and percentage of defaults in the energy and natural resources sector,” the agency said in a note. “So far, there has been little spillover effect into other sectors, but we are not ruling this out in the coming quarters.”

Chuck again.. the thing I don’t get here is what the heck is going on in the investors’ minds that think they need to buy these bonds? We have proof that there are multiyear highs in defaults , but the appetite for corporate debt/ bonds has not backed off, and in fact are up 33% for investment-grade bonds, and up 22% for high yield. I shake my head in disbelief. But this is what happens when investors that need returns and investment income to live, because of ZIRP. that has lasted way too long, but will continue because the economy isn’t strong enough to support rate hikes..

Currencies today 7/18/16. American Style: A$ .7592, kiwi .7105, C$ .7720, euro 1.1045, sterling 1.3230, Swiss $1.0160, . European Style: rand 14.3138, krone 8.4735, SEK 8.5715, forint 284.94, zloty 3.97, koruna 24.4720, RUB 63.10, yen 105.65, sing 1.3490, HKD 7.7551, INR 67.15, China 6.7037, peso 18.51, BRL 3.28, Dollar Index 96.66, Oil $45.71, 10-year 1.63%, Silver $19.88, Platinum $1,080.75, Palladium $636.90, and Gold. $1,326.90

That’s it for today. Well, I was gone for a while, did you miss me? HA! I finally teetered the wrong way, but that’s over now. Time to move on.. Well, I leave on my summer vacation this week. I didn’t know.. I thought we were leaving Friday afternoon, but my notice from the airline told me we leave Thursday morning! YIKES, I don’t have coverage for that day or the next day. Could it mean that we have a 4 day vacation in the Pfennig? My beloved Cardinals lose 2 of 3 from the Marlins this past weekend. UGH! This team can’t seem to keep from tripping all over themselves.. When I return from vacation, the training camps for professional and college football teams will be starting. WOW! Seems that we just finished Spring Training! The Who takes us the finish line today with their song: Behind Blue Eyes. It’s from their best album (in my opinion) Who’s Next, although Quadraphenia (SP) is a close second! Well, it’s that time again, late as usual, but Late is the new “on time”!
HA! I hope you have a Marvelous Monday, and Be Good To Yourself!

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