US dollar follows oil higher.

* Weekly jobs data slightly better.
* Dudley continues his $ defense…
* Oil rises to 6 week high.
* Gold gives back its gains…

And Now, Today’s A Pfennig For Your Thoughts.

Good morning. We will start Friday’s Pfennig with some thoughts from Frank who is on another cross country trip so take it away Frank.

Colby, Kansas – We’re about 9 hours into our drive and stopped here in Colby once again. Nice roadway motel, large gas station and Starbucks across the street. Should be enough combined fuel to make it the final five hours. Long suffering subscribers will recall, perhaps without nostalgia, that when I cross the plains there is usually a tidbit in the Pfennig.

This time as we drove the conversation turned towards new innovations. Aside from computing technology let’s all recall that there has been a lot going on over the past twenty years that is exciting. We have several friends with the all-electric Tesla cars. Universally they are promoters and completely excited about these vehicles. The range with the larger batteries is around 250 miles. That would break this drive into four stops and would probably allow us to glide in near empty. I can see why there are many more of these in the city than out here long distance. Our Volvo wagon shows over 450 miles of range when I pull out of the station. Still, just maybe . . . they are tempting for a former race car driver.

In a parallel universe we received an email during the day (and read it at a gas stop) stating that Uber would be attempting to implement self-driving cars in Pittsburgh. While the self-driving cars are not quite the flying cars of Popular Mechanics in the 1960’s they have some pretty exciting potential. One friend, a supplier to the auto industry has gone so far as to start strategic planning for a time with significantly lower auto production as you and I just call a self-driving car on our Uber application to head to work. Now combine with electric cars and that’s quite a trick. I am a huge supporter of the concept and hope they get it right sooner than later.

Staying on this track – and after many hours of the driving across the great plains – we thought that Elon Musk’s Hyperloop project, or some future version of it, should be implemented out here and not in California. Okay maybe it is out of the range of the Silicon Valley crowd as a result but for usefulness it’s a winner. As currently defined there will be people shuttled through the tubes between LA and San Francisco at about 700 miles per hour. We shifted the point of attack and envisioned cars, trucks, and people shot across Kansas and Texas and Oklahoma and . . . well you get the point. It’s likely something like that will happen someday – let’s get to it.

I’m not sure I have set up the perfect World Markets commentary, but I will note that entrepreneurs and people with capital come together to create innovation. We all benefit from better efficiency, more opportunity, and probably a safer world. It’s the markets that make that work creating liquidity at the end of the chain to reward the winners. Keep on investing, it just makes sense.

Thanks for sharing your thoughts with all of us Frank! As Chuck suggested yesterday there isn’t much to talk about this morning as we don’t have any major data releases and the markets are stuck in the summer doldrums. The dollar managed to claw its way back a bit after being sold on the somewhat dovish Fed minutes released on Wednesday. New York Fed president William Dudley rode to the dollars rescue again, reinforcing his earlier comments that the Fed could raise interest rates as early as September. He pointed to yesterday’s weekly jobs data which showed fewer individuals filed for unemployment benefits. The initial jobless claims for the week ending August 13th came in at 262k, just slightly lower than the previous week’s reading of 266k. Other data released yesterday showed consumer comfort moved up slightly and the Leading Index for July came in at .4% which was just a bit higher than economists’ predictions of a .3% increase.

There is no data scheduled for release today, and next week will be fairly light on the data also. The numbers scheduled for release next week will focus on the strength of the housing sector with new home sales released on Tuesday followed by existing home numbers on Wednesday. The durable goods numbers for July will be released on Thursday along with the weekly jobs data. But investors will mostly be focused on Janet Yellen’s speech from Jackson Hole WY which is scheduled for next Friday.

It will be interesting to see if Yellen tries to ‘jawbone’ the markets into thinking a rate increase is still possible in September; or if she sticks with the more dovish tone suggested by the minutes of last month’s FOMC meeting. I still think September is not a possibility, and there is only a very slight possibility of a rate increase in December. There is no sign of wage pressures, and Janet Yellen is at heart a dove so she will much rather error on the side of keeping rates too low for too long. There is just no way she will want to kill the fragile economic recovery here in the US with a rate increase. I still think Yellen will need to be ‘forced’ into a rate increase, and the data we have seen thus far in 2016 just isn’t strong enough to force the fed’s hand.

But let me get back to the markets and in particular the currency markets. The dollar clawed higher yesterday, boosted by Dudley’s hawkish comments and a slightly higher oil price, but the move was not enough to erase losses which were sustained earlier in the week. The Australian and New Zealand dollars booked some of the largest losses vs. the US$ after ratings agency Moody’s cut the outlook on Australian banks to negative due to sluggish profit growth. The kiwi was sold in sympathy with the Aussie dollar as most of the New Zealand banks are owned by Australian financial institutions. Higher oil prices helped push the Canadian dollar higher yesterday. The loonie hit an 8 week high vs. the US$ as oil prices continued the rally which began on the first day of August. Oil has gained over 8 dollars this month and is approaching the important $50 level which it hasn’t seen in over a year.

Gold prices fell overnight snapping a week long streak of gains after Dudley suggested a September rate hike is still possible. San Francisco Fed President John Williams joined Dudley in support of a rate hike in the coming months. The possibility of higher interest rates tend to push precious metals prices lower as investors are presented with higher earning alternatives. But as I shared earlier, there is just no justification to raise rates sooner rather than later and therefore I see these price drops in the precious metals as potential buying opportunities.

Currencies today 8/19/16. American Style: A$ .7612, kiwi .7257, C$ .7794, euro 1.1329, sterling 1.3089, Swiss $1.044 European Style: rand 13.50, krone 8.2113, SEK 8.3889, forint 273.92, zloty 3.7973, koruna 23.859, RUB 64.086, yen 100.27, sing 1.3472, HKD 7.7535, INR 67.1597, China 6.6211, pesos 18.3105, BRL 3.2301, Dollar Index 94.467, Oil $48.05, 10-year 1.53%, Silver $19.27, Platinum $1,108.00, Palladium $708.75, and Gold $1,338.05.

That’s it for today. We have our ‘closing ceremonies’ for the office Olympics today which will include food from all of the different countries. We are representing the UK so we brought in English muffins, strawberries and cream, tea, and of course some SPAM. Looking forward to see what all of the other countries decided to bring in – it will definitely be a ‘food fest’! Thanks for reading the Pfennig and make sure you have a Fantastic Friday and a great weekend!

Chris Gaffney, CFA
EverBank World Markets