U.S. Economic Data Continues To Print Weak!

Good day… And a Tom Terrific Tuesday to you! Boy, am I ever dragging the line this morning.. I’ve had two consecutive days of doing more than I’m used to, and I’m feeling the effects of all that this morning. The river keeps rising, and that means our little creek that backs to about 20 homes in our subdivision backs up and becomes a lake in our backyards. In December of 2015, we had what we were told was a 100-year flood, and now 15 months later, another 100-year flood… I’m beat, but there’s more work today to prepare for the crest tomorrow… And I’ll squeeze that work in between two doctor’s appointments today. Van Morrison greets me this morning with his song: Into The Mystic (I love this song!)

Well, yesterday morning I told you that the dollar had rebounded from Friday’s selloff after the awful 1st QTR GDP print. Well, that “rebound” didn’t last too long, as another round of U.S. data was soft and weak, and just didn’t meet expectations, so the dollar lost its footing, and in the overnight markets it’s been about the currencies, but within trading ranges, there’s been “runner” or “break-away” currency, just small rallies across the board.

The Reserve Bank of Australia (RBA) met last night (for us, today for them) and left rates and their neutral bias unchanged. In fact, their statement following the announcement that everything would remain the same, was very similar to last month’s statement, which if you recall, was upbeat, and gave Aussie dollar (A$) traders a warm and fuzzy. The Aussie economy is growing, albeit slowly, but growing, and with that growth, also comes a rising inflation.. I read a research paper last night that called for the RBA to hike rates but not until next May! I said to myself, “WOW”, we have to wait that long for a rate hike? I know in my heart of hearts that the RBA doesn’t want the A$ to take off to the moon, so I guess that makes sense that they would wait that long.” So, like I told you last week, I think it was, when the chartist, Jamie Seattle, said the A$ would remain in a trading range for some time to come…

And as long as the Fed doesn’t outdistance the A$’s yield, everything here could very well remain positive. And in my humble, country boy, opinion, which could be wrong, the Fed won’t get the opportunity to outdistance the A$’s yield, but then stranger things have happened, right?

Kiwi had a good night too, hanging on the coattails of the A$. Hey! whatever it takes, right? I did say above that that the currency rally was across the board, and on second thought I had better amend that statement, as currencies like the Chinese renminbi, Norwegian krone, and Brazilian real are NOT among the rallying currencies.

China printed their latest PMI (Manufacturing Index) this past weekend, and while it remained well above the 50 level that is the line in the sand between contraction and expansion. The Chinese PMI for April was 51.2… And then last night the Caixin PMI (I’ve explained this before) was weaker too.. So, the Global Growth Tent Revival took a hit, from the strong winds that China’s data causes. And the renminbi has seen weakness the past two nights.

The Norwegian krone, and Brazilian real are simply reacting to the fact that the price of Oil is looking like it will lose the $49 handle very soon. I’ve got something for you in the FWIW on Oil today, so stay tuned for that, same bat time, same bat channel!

I don’t know what happened but yesterday afternoon when I got back home from helping neighbors prepare for the floods, I checked the currencies and metals, and saw that the metals had put in a good day… But when I look at their levels this morning, they are nowhere near the ones I saw yesterday afternoon! And unfortunately, that doesn’t mean they were higher this morning… NOOOOOOO Instead they are lower this morning… I guess there was a rush to sell at the closing bell, and Gold ended up down $11.60 on the day, to close at $1,256.10… UGH! But don’t be sad! This weakness yesterday, just means that Gold is cheaper today than it was yesterday morning!

I told you yesterday morning that China, India and Russia were still accumulating physical Gold, and then the Gold researcher extraordinaire, Koos Jansen, who writes for the www.bullionstar.com website, probably had a lot to do with this report that showed the amounts of Gold these three accumulated in April… No, I take that back.. India is quite slow at reporting their Gold holdings, so their data is from February… Anyway, I just wanted to show you that I don’t make this stuff up, and China, India and Russia ARE still accumulating physical Gold by the truckload! If you have the time, check the charts that Bullion Star has for your viewing pleasure!

The euro is back above the 1.09 figure this morning, and there’s very little news coming from the Eurozone lately, but that’s about to change this weekend when the French go to the election booths again. Or, the news that European Union (EU) officials tend to make this divorce with the U.K. very difficult, and messy..

Speaking of the U.K. the pound sterling has really been on the rally tracks the last couple of weeks, but is this a case of “running ahead of the crowd” ? I think so, and I also think we’ll see the pound fall back to the crowd, before the end of the race. The U.K. saw inflation print weaker than expected last week, their 1st QTR GDP wasn’t stellar, and among all other things, they are up to their eyeballs in debt… And when a country is dealing with piles and piles of debt, they spend all their time figuring out how to finance it, and how they could rid themselves of the debt, instead of thinking of things to promote growth.

Speaking of Debt, here in the good old USA, our debt is much greater than the stated amounts… Just ask the Congressional Budget Office (CBO) who creates accounting reports treating the U.S. Gov’t just like a U.S. Corporation using GAAP and other accounting rules that Corporations have to follow, but the U.S. Gov’t doesn’t, which leads us to the having debt figures that are much greater than the Gov’t tells us… Other than accounting for the U.S. Debt the right way, the CBO always has a gem for us and I’ve got one from the CBO for you today. I got this from Grant Williams’ newsletter: Things That Make You Go Hmmmm… Here’s the CBO… “High and rising federal debt would reduce national saving and income in the long term; increase the government’s interest payments, thereby putting more pressure on the rest
of the budget; limit lawmakers’ ability to respond to unforeseen events; and increase the
likelihood of a fiscal crisis.” – CBO

But here’s the kicker that I’ve found over the years… Congress doesn’t listen to the CBO… Or the Comptroller of the Currency, or the General Accounting Office (GAO)… So, if no one that makes the deficit spending decisions is going to listen to these organizations when they pound the drum about long term debt, then why have them? Save the taxpayers some money! I’m as a serious as a heart attack here, I don’t want to see anyone lose their job, but if you’re producing reports that no one that makes decisions looks at, then there’s no need for the report!

These reports just drive people like me crazy! For I see nothing but bad things to come from all this debt, and I told you that we have more than we’re showing, just so you could share in my going craziness!

The U.S. Data Cupboard yesterday was interesting… Personal Income and Spending for March led us off, and the On Base Percentage dropped… HA! Seriously, Personal Income grew 0.2% (not exactly making anyone rich here) and Spending grew at 0.3% VS February (for both that is), but the underlying details of the spending weren’t so good, as Durable spending fell -0.7%, and nondurable consumption grew at 1.8%.. Nondurables include clothing and footwear. Hmmm, not exactly stuff that you go back to buy every month, eh? So, when I look at this spending data, I think it confirms what I said yesterday, and that is the U.S. consumer is running on empty… or an even better term for all the youngsters that love that UFC fighting… The consumer is “tapping out”..

We also saw the U.S. PMI (we call it ISM), take a big drop in April after printing a 57.2 in March, the April print was 52.8… that’s a big drop in the index folks, and is another hit for the Global Growth Tent Revival, but also a big hit for the U.S. economy, which I keep telling you is going in reverse, while the Fed is hiking rates! UGH!

And finally the Data Cupboard had March Construction Spending, which printed negative! February’s print of 1.8% growth, was quickly erased by the March -0.2% print…

So, like I said above, the weak data squashed the dollar rally yesterday, and the currencies have held the conn since…

I mentioned above that the economy is weakening while the Fed is hiking rates, and last week I told you that the Fed was going to hike rates in June come hell or high water.. And some of you might be wondering why would the Fed be doing this at this time? Well, I have to tell you that there are two schools of thought here, so you can choose which one you think parlays the right answer for you…

First is the thought that Fed members are quite aware that the economy is going to the dogs, but they want to have some arrows in their quiver (rates to cut) when the economy goes negative…

Second, is the thought that there’s quite the froth on the stock & bond markets, and the Fed is doing their best William McChesney Martin (former Fed Chairman from many years ago) imitation, by removing the punch bowl with rate hikes… Of course the former Fed Chairman, said that the Fed’s job was to take away the punch bowl just as the party get started… Unfortunately, this party (in stocks and bonds) began with Quantitative Easing (QE) in 2009, so I think the Fed missed the start of the party!

To recap… The dollar’s rally yesterday morning was cut short by weak data in the U.S. Personal Income didn’t meet expectations ,and Spending was OK, as long as you didn’t look under the hood, which the markets did. Then the U.S. manufacturing index dropped from a 57 handle to a 52 handle… OUCH! Now that’s going to leave a mark! Gold took a hit late in the day, and the price of Oil is looking like it won’t be able to hold the $49 handle.. Chuck makes a call that the pound is running ahead of the crowd, but will soon fall back to the crowd, and Chuck explains the two schools of thought on why the Fed continues to hike rates while the economy is weakening.

For What It’s Worth… Some days I scour the internet for a FWIW article that’s worthy, and other days they pop out at me before I even begin writing, which is what happened today with this Bloomberg article about the Texas Wildcatters continuing to drill for Oil, while the price of Oil continues to drop, and it can be found here: https://www.bloomberg.com/news/articles/2017-04-30/oil-price-optimism-wears-off-as-texas-wildcatters-drill-on

Or, here’s your snippet: “The relentless drilling ramp-up in America’s top shale plays is making investors more skeptical that an oil price rebound is on the horizon.

After increasing their bets on rising West Texas Intermediate crude for three straight weeks, money managers slashed the wagers by 21 percent, according to U.S. Commodity Futures Trading Commission data. Producers in Texas are leading the longest shale revival since 2011, making OPEC-led efforts to rebalance the market increasingly difficult.

There’s still a lot of talk about high inventory levels, Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts, said by telephone. Investors felt that prices had “gone up too much compared to the fundamentals. The shale oil production trend is definitely bullish, which is bearish for prices.”

This month’s production in the top U.S. shale plays will reach about 5.2 million barrels a day, the highest level since November 2015, according to the Energy Information Administration. As producers pour billions of dollars of investment into fields like the Permian and Eagle Ford in Texas, the country’s oil-rig count has more than doubled in a year to 697 last week, according to Baker Hughes Inc.”

Chuck again… Once again, I see a major problem developing for the Oil producers here in the U.S. if they continue to drill and pump Oil, while the price of Oil continues to slide… I can’t believe that the Oil producers don’t see these problems developing!

Currencies today 5/2/17… American Style: A$ .7532, kiwi .6921, C$ .7323, euro 1.0920, sterling 1.2891, Swiss $.9936, … European Style: rand 13.3340, krone 8.5930, SEK 8.8325, forint 285.71, zloty 3.8660, koruna 24.6460, RUB 56.87, yen 112.23, sing 1.3944, HKD 7.7806, INR 64.16, China 6.9037, peso 18.73, BRL 3.1732, Dollar Index 99.06, Oil $49, 10-year 2.34%, Silver $17, Platinum $935.63, Palladium $815.56, Gold $1,255.70, and SGE Gold.. $1,274.31

That’s it for today.. Well, If I can get out of my river town this morning, I go to see the doctor/ surgeon that saved my life almost 10 years ago… That’s right, next month, I’ll observe 10 years as a cancer survivor… And I have to say that while it hasn’t been a cake walk in any stretch of the imagination, I’m very fortunate to still be here, and I thank the Lord every day for that… My beloved Cardinals just can’t keep from shooting themselves in the foot.. Every game there’s an error that opens the door for the opposition… And not always a fielding error! Their base running is atrocious! Oh well.. Our Blues try to even up their playoff series tonight. The game doesn’t start until near my bed time, so I won’t be watching much of it! I think the flood levels are going to be worse than they’ve forecast, just using my own gauge… Please keep us in your thoughts, we’re going to need every ounce of luck there is to get through this… Kansas takes us to the finish line today with their song: Dust In the Wind.. Thank you for reading the Pfennig, I hope you have a Tom Terrific Tuesday… Be Good To Yourself!

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