US House votes to repeal and replace.

In This Issue.

* US House votes to repeal and replace.
* Norway keeps rates unchanged.
* Euro moves higher on hawkish ECB.
* Gold drops back to 100 day moving average…

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

Good morning. Frank will kick things off again this morning with some thoughts on the markets:

The Wall Street Journal online led off with “[a] cynic might say House Republicans wanted to repeal and replace Obamacare in the worst way, and that’s just what Thursday’s vote accomplished.” Lines like that are normally reserved for late night comedy shows and newsletters like here at the Daily Pfennig but now I guess they are mainstream. HA. I haven’t had time to read the actual bill so I have no opinion at this time, but I can be confident in forecasting that it will be the topic of conversation for at least the next couple of weeks. The cynic in me thinks that they took the vote ahead of the CBO analysis to avoid having any real data on which to make a decision; facts just get in the way these days. Humpf.

Well our very own Hans Brinker, honorable person that he is, continues to watch for holes in the water control in the hamlet by the river. I am a little surprised given his sales skills that he hasn’t, like another fictional resident of a river town close by, gotten someone else to whitewash the fence. But vigilance is strongest when it’s your own property.

Since they get to spend money that isn’t their own that type of vigilance has been absent from congress since the early 1980’s, and accelerating here in the 2000’s with both parties falling asleep on their watch of the dike. As we know ( the percentage increase under Regan was the most followed in order by Bush II, Obama, Bush I, and Clinton. Regardless of party affiliation or blame the deficit and the outstanding debt of the US continues to rise. It is becoming increasingly clear that congress is constrained to working around the edges since the major spending categories are considered off limits – at least to cut. We’ll be looking forward to the CBO and many private think-tank analysis of the new medical care bill – if and when it passes the Senate. Until then we’ll save late night reading for novels with a believable plot, not the speculative fiction happening in real life.

Thanks to Frank for getting us rolling. The vote in the US House didn’t really generate much reaction in the markets yesterday as investors focused on today’s jobs report instead. Yes, we have another monthly report by the labor department out today, and economists predict we will see 190k jobs created in April. This is a dramatic turnaround from last month’s disappointing figure of just 98k jobs. The risk for the markets is that we get another miss which would definitely decrease the odds of a June rate hike. The FOMC definitely seems set on a .25% rate hike in June, a figure of 150k or less would definitely force them to reconsider – especially after last month’s weaker than expected reading. And remember that the ADP report on Wednesday had the smallest monthly jobs gain in seven months, so a miss could definitely be in the cards.

I’m a bit delayed in getting this out to everyone so I can tell you the Jobs report came in right about where everyone had expected, with the Unemployment rate dropping to a 10 year low of 4.4% after 211k workers were added to the nonfarm payrolls in April. The March number which had missed BADLY was revised even lower to just 79k, but this was largely overlooked as the rest of the report was slightly stronger than expected. The key for the FOMC continues to be wage growth, and the avg hourly earnings showed an increase of .3% MOM and 2.5% YOY which is largely in line with expectations. But this is still below what you would expect in an economy which is running near ‘full employment’.

The dollar is generally up this morning after falling a bit in trading yesterday. The Norges Bank kept rates unchanged yesterday, which was expected by most investors as the price of oil continues to languish around $50. Speaking of oil, it was one of the largest movers in the markets yesterday, dropping to the lowest level since November of last year on signs that OPEC won’t be doing anything more to reduce what is becoming a glut of crude oil in the markets. OPEC will probably extend their production cuts for another 6 months, but US producers continue to keep the oil flowing as does other non-OPEC members.

The Euro was stronger yesterday as investors discount a possible surprise in this weekend’s French elections. Emmanuel Macron continues to consolidate his position to win the Presidential election against anti-EU candidate Marine LePen. At $1.0984 the euro hit a six month high vs. the US$ yesterday, but is drifting lower this morning. The stronger Euro has also helped the Sterling climb back against the US$. The pound was helped by stronger than expected Markit Services PMI data which increased to a four month high of 55.8 in April. This follows other data which showed the UK manufacturing and construction sectors are also improving.

Chuck sent me the following note yesterday on the Eurozone recovery and asked me to share it with everyone:

So, I was reading an article yesterday about how the Eurozone was growing at a pace that could be stronger than the U.S, U.K., Japan and a few others! WOW! 4th QTR GDP 2016 was 0.5%, and the 1st QTR flash print of GDP was 0.5%… Now, you’ve heard me chastise the U.S. for their awful 0.7% print in the 1st QTR, but.. herein lies the difference. In the Eurozone, they KNOW they are in a recession, and trying to work their way out of it, while here in the U.S. our Fed just keeps telling us how wonderful the economy is. See the difference? Anyway, one forecaster in the EU says that the Eurozone GDP for 2017 will be 1.7%.. Now if that comes to fruition, people will sit up and take notice!

While I was reading that article, a side article caught my eye. And that was about a country we don’t talk about much.. Denmark! Well, Denmark paid down their last foreign debt yesterday! How about that? After 183 years of having foreign debt on their books, they’ve paid off the last foreign debt and should be darn proud of that accomplishment! Basically, over the years dating back to 1757, Denmark garnered loans to bulk up their FX reserves.. But with the recent defending of the peg of the krona to the euro, Denmark has seen its FX reserves pile up, and so therefore no longer need to go out and get foreign loans. Good for them!

Thanks for that addition to this morning’s Pfennig from Chuck. And I’ll end today’s Pfennig with a quick look at the precious metals which are ending a pretty rough week. Silver has been the worst performer this week, dropping over 5% on rate expectations and worries about global growth. Gold prices hit a six week low yesterday and Platinum continued to drop. While most investors have been expecting two more rate hikes in 2017, it seems that precious metals investors are more worried about these rate hikes than anyone else. The equity and bond markets seem to be taking the rate increases in stride, but they are being blamed for the big pull back in the precious metal prices.

Currencies today 5/5/17. American Style: A$ .7394, kiwi .6904, C$ .7267, euro 1.0974, sterling 1.2942, Swiss $1.012 European Style: rand 13.57, krone 8.6205, SEK 8.8025, forint 283.60, zloty 3.8382, koruna 24.369, RUB 58.44 yen 112.53, sing 1.4045, HKD 7.7840, INR 64.31, China 6.884, pesos 19.027, BRL 3.1768, Dollar Index 98.81, Oil $45.42, 10-year 2.3505%, Silver $16.30, Platinum $904.25 Palladium $806.25, and Gold $1,228.91.

That is it for today. Happy Cinco de Mayo to everyone! Several years ago Chuck sent everyone a similar message in the Pfennig and one reader took offense and sent a nasty email back to Chuck calling him a Big Mak. We had to think about that one for a long time before Chuck finally figured out what those letters stood for and that had everyone on the desk cracking up. So now every May 5th we always remind Chuck that he is our favorite Big Mak. You’ll have to ask Chuck what that means the next time you run into him at a conference. There is a big celebration here in the office today for Malinda who is leaving us to move up to Chicago – we will miss you Malinda! With that I will tell everyone to have a Fantastic Friday and Happy Cinco de Mayo!! Thanks for reading the Pfennig.

Chris Gaffney, CFA
EverBank World Markets