U.S. Economic Numbers Continue To Be Weak.

In This Issue.

* Dollar has the conn again.
* Gold rallies on GT’s ratcheting higher!
* RBNZ to meet tonight…
* Russian inflation sees huge drop!


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

U.S. Econonmic Numbers Continue To Be Weak.

Good day. And a Wonderful Wednesday to you! A bit better night of sleep last night, and I only coughed up one lung instead of two! HA! I love it when the Cardinals are on the East Coast, because the games start an hour earlier for us here, which means I’m awake till the end of the game! And last night, was a game you wanted to be sure to be there till the end of the game! Graham Nash greets me this morning with his song: Simple Man. (sort of my theme song: I am a simple man, and I sing a simple tune)

Well, we start this Wednesday knowing that N. Korea tested another missile last night. As if to say, “hey China and the U.S., watch me do this!” We also know that the FBI Director here in the U.S. got canned. The N. Korea news increases the Geopolitical Tensions (recall GT’s?) that had been moved to the back burner in recent days. When the GT’s get the headline news, then Gold usually gets on the rally tracks, and after giving up nearly $5 yesterday, the shiny metal is up a few bucks in the early morning trading, so no sign of a “real” positive reaction to the news.

The dollar still holds the conn this morning, and the euro, which I said yesterday morning, looked as though it was not going to be able to hold the 1.09 figure, proved that comment to be right by mid-morning yesterday, and just below 1.09 is where the euro has traded since. I had a longtime reader send me a note yesterday and ask me when I was going to say a few words about the Canadian dollar/ loonie..

Good question! And here’s your answer. NOW! Well, I have a very good excuse why I’ve not talked about the loonie lately, other than to throw it in with the discussion of the Petrol Currencies, is that after the whacking it took from the 20% tariff that was placed on their softwood exports to the U.S., there really hasn’t been anything to move the currency to talk about. That’s my story and I’m sticking to it! Seriously, though, besides some housing data, and other lower tier data, the pickings are slim here lately. The loonie is getting sold on the Commodities sell off, and the weaker Oil price, then throw in the 20% tariff, and what you have here is a currency that will have to do all it can to retain 73-cents.

In Russia yesterday, they printed an excellent inflation report. Russian April inflation Year on year was only 4.10%!!!! Now, in the old days of real fundamentals driving currency prices, this would be huge for the ruble. But in this day, with investors looking for every inch of yield they can get, news like this signals more rate cuts, and thus a narrowing of the positive interest rate differential that the ruble enjoys against every other currency on the planet. And that’s not a good thing, according to the way things are valued these days. Sure, a rate cut is considered to be a currency debasement, but the idea here is that interest rates were very high to defend the currency, when it was being sold hand over fist, so the ratcheting down of these rates means that things are much better in Russia, and that the currency doesn’t have to be defended any longer. So much for that, eh?

The Reserve Bank of New Zealand (RBNZ) meets tonight (for us, tomorrow for them) and like I said on Monday this week, I expect the RBNZ to move their bias from tightening to neutral. Since I wrote that on Monday, I’ve seen a few currency dealers make that call too. Interesting, eh? You don’t think that. Nah, they don’t read the Pfennig, that would give them an advantage over the competition! HA! See? Even in my, more tired than a one armed paper hanger, frame of mind this morning, I can pull a rabbit out of my hat!

This morning, Norway printed their April CPI (consumer inflation), which was weaker than expected at 2.2% VS 2.5% expected. But, by and large, still on track for the Norges Bank, who targets inflation at 2%… Yes, 2.2% is greater than 2%, so why isn’t the Norges Bank hiking rates, you might ask? The volatility of the Oil price, that’s why. But, in any case, the krone should get some love from this report today.

I had a dear reader send me a note the other day that listed the major automakers and their latest earnings reports. let’s go through them here:

Fiat/Chrysler -7% (-5.9% expected) so worse than expected!

Nissan -1.5% vs +1.5% expected, so worse than expected here too!

Toyota April 2017 US car sales -4.4% vs -4.2% , and here too!

GM drop of -5.8% vs -2.0% expected. I think I see a trend here.

Ford vehicle sales -7.1% vs -4.7% expected. Oh, I do see a trend, I do see a trend!

Now, those are just plain awful numbers, folks. And like I’ve said all along, the new car sales wouldn’t go on forever, and it looks like the Merry-Go-Round stopped in April! Just another sign that the economy is weak and getting weaker.

I know, I know, I’m beginning to sound like a broken record, with the talk about how weak the economy is, and yet the Fed keeps hiking rates. But, when scenarios like this begin to take shape, I feel like I need to be all over them like a cheap suit, so that no one will be left holding the bag that reads this letter! And I was even more lathered up than usual last week when the Fed’s statement, following their no rate change announcement, was all about how the weak data is “temporary”. Yeah, like taking the dollar off the Gold standard was only supposed to be “temporary”. Or like the income tax, was only supposed to be “temporary”. So, if that’s the kind of “temporary” they’re talking about, then OK, I’m with them, otherwise, I just don’t see it like they do. And don’t forget they have rooms filled with economists with far more gray matter than me!

The other thing that bugs me, is the fact that the Fed statement didn’t even mention the debt levels of U.S. citizens, and how that might be affecting citizen’s ability to go out and spend. Last week I spent two days talking about how the U.S. consumer had “tapped out”. Yesterday, I saw a graph that showed that U.S. consumer debt levels are now equal to, and still growing, the levels that consumers held in 2008. Really? Yes, sirree Bob! So, here we sit, and the number of derivatives are greater than they were in 2008, consumer debt levels are the same as they were in 2008, the economic data is signaling to us that things just aren’t right, but come hell or high water, the Fed will hike rates in June

Oh, and this just in. The Atlanta Fed with their GDPNOW calculator, just slashed their initial forecast for 2nd QTR GDP of 4.3% to 3.5%… I expect that this 3.5% number will get further slashing!

OK. Enough of that! I told you above that Gold nearly lost $5 yesterday, actually losing $4.90, and closing at $1,221.10, but is up $6.70 so far in the early morning trading. A very large number of contracts traded again yesterday in Gold, with the total being 215,000. I love the fact that Gold gets so much attention in trading these days, but I also dislike it very much because it gets so much attention in trading these days. Gold still has a long way to go, here in the U.S. with investors, understanding that it’s a store of wealth, and not a commodity that should be traded every second.

The U.S. Data Cupboard is still printing 2nd and 3rd Tier data today, but we will, and then maybe we won’t, get a chance to see the Federal Budget for April. I say that maybe we will and maybe we won’t, is that even though this data has a scheduled print date, sometimes it gets “delayed”. You know, like when the number will be much larger than expected, and they want to slide it in under the cover of darkness..

To recap.The dollar still has the conn this morning, but the precious metals, led by Gold, are rallying in the early morning trading. N. Korea tested another missile last night, so the GT’s are back from their trip to the back burner. The RBNZ meets tonight, and Chuck expects them to move their bias from tightening to neutral, which could give kiwi a lift. The euro lost the 1.09 handle yesterday, but remains just below it this morning. And Chuck shows more examples of why he believes the economy is pulling into recessionville.

For What It’s Worth. I received this email yesterday from the Wealth Management.com people. I usually scan it and delete it. But yesterday’s email had something that caught my eye, and so I bring it to you this morning. It’s a brief discussion about the flow of investment fund money, and it can be found here: http://www.wealthmanagement.com/equities/fund-flows-after-french-election-investors-focus-central-banks?NL=WM-019&Issue=WM-019_20170509_WM-019_183&sfvc4enews=42&cl=article_1_b&utm_rid=CPG09000006354218&utm_campaign=9401&utm_medium=email&elq2=3e79ae637c6e4d0bbeb3234adbf10bae

Or, here’s your snippet: “The burst of enthusiasm that followed the first round of France’s two-stage presidential contest faded rapidly during the week ending May 3, as investors shifted their focus-for the moment-from European politics to central bank policies. The week kicked off with the European Central Bank’s April meeting and ended with the U.S. Federal Reserve’s May meeting, with meetings of Russia and Australia’s central banks in between.

Flows into Europe Bond Funds jumped to a 16-week high and Europe Equity Funds extended their longest inflow streak since the fourth quarter of 2015. The streak came after the ECB kept its current policies unchanged and ECB President Mario Draghi said that tapering the current quantitative program has not been discussed. Meanwhile, more than $9 billion flowed out of U.S. Equity Funds ahead of the Fed’s meeting and a subsequent statement that soft first quarter numbers won’t change its stance on raising interest rates.

Overall, EPFR Global-tracked Equity Funds saw a net $3.5 billion redeemed during the seven days ending May 3, while Bond Funds absorbed another $9.7 billion and Money Market Funds over $12 billion. Dividend Equity Funds extended their longest run of inflows year-to-date with Global Dividend Funds accounting for the bulk of the headline number.

At the single country and asset class levels, Germany Equity Funds recorded their biggest inflow in more than a year, redemptions from France Equity Funds jumped to a 29-week high. India Equity Funds took in fresh money for the ninth week running.”

Chuck again. you know, I’ve always told you to “follow the money”. I’m just saying.

Currencies today 5/10/17. American Style: A$ .7378, kiwi .6933, C$ .7295, euro 1.0890, sterling 1.2943, Swiss $.9926, . European Style: rand 13.5188, krone 8.6975, SEK 8.9166, forint 285.75, zloty 3.8750, koruna 24.5335, RUB 58.31, yen 113.90, sing 1.4112, HKD 7.7862, INR 64.59, China 6.9057, peso 19.07, BRL 3.1922, Dollar Index 99.58, Oil $46.38, 10-year 2.37%, Silver $16.22, Platinum $908.65, Palladium $799.25, and Gold $1,233.30 and SGE Gold. $1,235.75

That’s it for today. We’re already 10 days into May! I can’t believe what time it is right now! I was earlier than usual (coughing), and just decided to start writing, and now I’m at least an hour earlier than usual and ready to send off for review! I’ll send it off, try to sleep for an hour, come back and get the letter out! What a great comeback win for my beloved Cardinals last night, losing 5-1 in the 8th, they came back to win the game 6-5! The young kid from Single A ball, that got called up because of injuries, has been spectacular so far! I need to get up this early again tomorrow, for it’s an infusion day, that gets started early! Gerry and the Pacemakers takes us to the finish line today with their song: Ferry Across The Mersey. I’m sure I’ve told you this before about that song, but here we go again anyway. I used to sing that song to Alex when he was just a toddler, to get him to sleep. When it began playing this morning, I thought of him when he was that little, and I would rock him and sing him songs, and then fast forward to last week, when he was the star performer at the sandbag wall building. They grow up fast, eh? I went to watch son Andrew’s Water Polo Team win their quarterfinal game of the state water polo tournament last night, and they won 10-6, which puts them into the Final Four for the 3rd consecutive year! What an accomplishment for him and his teams! And with that I need to go! I hope you have a Wonderful Wednesday, and don’t forget to Be Good To Yourself!

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