Waiting on the last big US data for 2016.

* Last blast of data for 2016.
* Dollar dips.
* NZD reverses on better data.
* Gold Eagle sales hit a 5 year peak…

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

Good morning. This will be the last Pfennig I will be bringing you this week as Chuck has informed us he has a special treat for everyone tomorrow. The markets continue to see less activity as many of the ‘professional’ investors have already left for their holiday weekend. But before I get going I want to share Frank’s contribution to this morning’s Pfennig. Take it away Frank:

Somewhere over Arkansas – It must be winter break at college. Our little rag tag mob of morning ice hockey players normally runs about 15 skaters. Today about 30 showed up. Adding in some D1 in-college and just-out-of-college talent changes the game quite a bit for those of us over 60. And that’s great. It’s great fun to see these guy who can do it all, even if it involves getting seriously bamboozled myself. Poetry on ice. Somehow with all those people the pace of the game picks up so we all end up with a great workout. The objective after all.

Speaking of college, justifying the budget for higher learning is a pretty complex undertaking. There are many ways to attend college these days, and many versions of the truth about cost. Paying rack rate at a name brand University is probably a $200,000 bill. Our Canadian friends tend to just pay room and board. Scholarships and grants reduce to burden for many. Regardless it’s a big ticket item. Cut out of the video due to time constraints Doug Casey has for many years recommended skipping formal training and spending money to explore some unique part of the world instead – unless one is aimed at a technical pursuit like engineering. For me both technical and liberal arts can be valuable but one has to select the right place. The absolute key to learning IMHO can be summed up by “believe nothing, challenge everything.” It’s mostly about how to learn with some basic facts thrown in.

I was reminded of this when someone mentioned the quote attributed to many people yesterday. “Everyone is entitled to their own opinions, but they are not entitled to their own facts.” No matter which side of the political aisle you sit on you must have been frustrated in some discussion(s) in the past couple years when you observe this rule being broken. Whether it’s intentionally constructed statements based on inaccuracies or just sloppy knowledge throwing the conversation line off while the assumptions are debated. I’ll try and maintain a stoic attitude (see yesterday’s Pfennig) but I’m not sure I am a good enough person to do so. Sigh.

Thanks to Frank for helping us get things going this morning, and Mike Meyer sent me the following as he headed out the door for a bit of an extended Christmas break: As advertised, it was a relatively light day for US economic data yesterday. With that said, the news came in better than expected as we saw a rise in the weekly mortgage apps, and more importantly, there was a better than expected result in November existing home sales. In fact, the pace of existing home sales rose to the highest level in nearly 10 years by climbing to an annual rate of 5.61 million units and was considerably better than the initial expectations of 5.50 million. The overarching theme in the news stories suggests rising interest rates and prospects for the trend to continue has forced the hand of many buyers.

I found some individual components of the aggregate number to be interesting. For example, single family home sales actually fell 0.4% while condos/co-ops rose 10%. Further, the average number of days to sell a home was 43 days, which is down from 54 days in November 2015, and 42% of homes sold last month were on the market for less than a month while home/rent prices are still running hotter than income. At the end of the day, it will be interesting to see how the housing market reacts to the Fed rate increase(s) as well as the recent rise in bond yields since it will take a couple of months for all of that to work its way through the system. We will see if new home sales can follow the same path this morning. Most economists are looking for new home sales to rise 2.1%, so the expectations are in place.

Thanks to Mike for that excellent summary of yesterday’s housing data. In addition to the New Home sales data due later today we have an absolute plethora of data with US durable goods, US GDP, U of Mich Confidence, and the PCE figures along with the weekly jobless data. Whew – that should be enough data to keep all of the ‘junior’ analysts left on the trading desks busy! The Durable goods number is one which will be closely watched, and it is expected to show a drop of 4.7% in orders for November following a strong 4.6% increase the month before. We will also see the final reading of 3rd quarter GDP which is expected to show a slight increase from 3.2% to 3.3%. And the inflation data contained in the PCE numbers is expected to show US inflation is starting to bubble higher with Core PCE prices expected to show an increase of 1.7% in Q3.

So expectations are for the numbers to show the 3rd quarter was pretty strong here in the US, but the durable goods number which is a bit more forward looking will cast a bit of doubt on the outlook for Q4.

I went to lunch with a number of fixed income traders yesterday (Thanks for the invite Scott!) and the conversation around the table was mainly on year end position squaring. A couple of the guys knew they were going to be tasked with putting money to work in these thin markets as their treasurers wanted to reduce the amount of cash being held over year end. But the others had pretty much squared up everything and were basically going to be observers of the markets through the end of the year. This is the danger of the last couple of weeks of the year: you have very thin liquidity as most investors are done for the year but then you can get one or two big orders which move these thin markets. We’ve seen it before – a whole lot of quiet interrupted by moments of volatility.

The dollar continued to drift lower in the thin markets yesterday as traders continued to lock in profits on their ‘long dollar’ positions. The dollar index is barely hanging on to the 103 handle, after hitting a 14 year high of 103.29 on Tuesday. The only risk for currency markets is that a piece of the large amount of US data being released this morning dramatically disappoints throwing the pace of interest rate increases in 2017 in doubt. But barring that the dollar index is probably going to continue to range trade through the new year.

The euro continues to recover this morning as the Italian government is expected to announce a bank bailout. The world’s oldest bank, Monte dei Paschi di Siena has been struggling for years and last ditch efforts for a private rescue plan failed overnight. So now the Italian government is expected to announce it will ‘backstop’ the bank – news which has been welcomed by traders in the European financial markets.

The rest of the currency markets are a mixed bag, with the dollar generally drifting lower but not by much. The New Zealand dollar broke out of a weeklong losing streak overnight after data released down under showed the NZ economy grew at 1.1% last quarter, easily surpassing economist expectations. This data confirms the New Zealand economy has been able to withstand the Chinese slowdown and paints a much rosier picture going forward. The better growth number also increases the odds that the New Zealand central bank will start pulling back stimulus measures and possibly increase rates in the second half of 2017. With global rates remaining near zero, if the RBNZ is able to be the first central bank to follow the FOMC’s lead on rates you could see that translate into a boost for the New Zealand dollar.

Oil prices fell a bit, dragging the Canadian dollar lower with them. Canadian inflation and retail sales numbers are expected later this morning, and this data could alter the path of the loonie in what is very thin trading. Oil, which is one of Canada’s major exports, saw its price fall yesterday on the back of a surprise increase in US crude inventories and news that Libya expects to boost production over the next few months. With the latest increase in US rates, yields in Canada are actually below those available here in the US which has also added to selling pressure on the Canadian dollar.

Gold prices held in a very tight range yesterday waiting on today’s US data. The markets are largely in holiday mode and unless this morning’s data surprises on one side or the other gold will just stay in these tight ranges through year end. One piece of news which caught my eye yesterday showed that American Eagle gold coin sales soared to a 5 year peak this year. The US Mint announced yesterday that total sales of American Eagle gold coins totaled 985,000 ounces and they also said they are sold out for this year. This was a 23 percent increase in coin sales from 2015 and what also the highest sale amount since 2011. You would expect that record physical sales would equate to higher prices right? That is what supply and demand would dictate, but the price of gold is also impacted by ‘paper’ sales which have largely been in the opposite direction – offsetting all of this physical demand. I’m sure Chuck will have plenty to say on this, so I’ll just wrap this up.

Currencies today 12/22/16. American Style: A$ .7211, kiwi .6899, C$ .7407, euro 1.0450, sterling 1.2323, Swiss $.9758 European Style: rand 14.077, krone 8.7034, SEK 9.188, forint 296.86, zloty 4.2141, koruna 25.831, RUB 60.815, yen 117.67, sing 1.448, HKD 7.7622, INR 67.912, China 6.9435, pesos 20.775 BRL 3.33, Dollar Index 102.95, Oil $52.69, 10-year 2.56%, Silver $15.83, Platinum $909.50 Palladium $660.20, and Gold $1,130.02.

That’s it for today. Thanks to both Frank and Mike for their help this morning. The basketball game lived up to the dismal expectations last night with the Illini pulling out a very ugly victory over the Mizzou Tigers. It was embarrassing to see almost half the seats in the Scottrade center left empty – I guess many of the basketball fans chose to watch the KU vs Louisville matchup instead. Tonight I have a bit charity ball which I will be attending with my daughter, so another late night for yours truly but Chuck rescued me with his note that he will be bringing you the Pfennig tomorrow. So this is my opportunity to wish everyone a Very Merry Christmas – I hope you all get to enjoy the long weekend with your families. Thanks for reading the Pfennig!

Chris Gaffney, CFA
President
EverBank World Markets
1-800-926-4922
https://www.everbank.com