Another Week of Central Bank Meetings

Good day, and a marvelous Monday to you!

It appears that we’ll have yet another “super week” with tons of Central Bank meetings around the world, backed up by economic data reports, and the finishing up the week with a U.S. Jobs Jamboree.

The Central Banks that will meet this week include:  The Bank of England (BOE), The Reserve Bank of Australia (RBA), Norway’s Norges Bank, and Poland’s Central Bank. There are others going on but we don’t really follow those in Malaysia and Thailand.

Last week’s plethora of Central Bank meetings, data, and goings on, didn’t really work out well for any country, including the U.S. and that should continue this week.

The currencies this morning are pretty flat, with some up a bit, and some down a bit, as if someone is waiting to say, ready set go!  And that someone could be in the form of the U.S ISM Manufacturing Index.

Recall that last month, the index number fell once again to 50.0. If the downward move in the index continues for Rocktober, then we could be looking at a sub-50 number, which would confirm a contraction of the manufacturing sector.

There were some PMI’s (manufacturing index reports) already put to bed this morning. First, and probably just as important as the U.S. Manufacturing Report, we saw China’s official PMI increase to 48.3 from a previous print of 47.2. Still below 50, but moving in the right direction after bottoming out a couple of months ago.

The Chinese renminbi is stronger again this morning, which follows Friday’s HUGE appreciation that the like of which hadn’t been seen since July 2005, when the original peg to the dollar was broken.

I think most of this appreciation of the renminbi is more a reflection of the currency edging closer and closer to being named a reserve currency by the IMF, and not the data. Although good data from China should be dealt with accordingly. Because bad data has!

And in the Eurozone, their aggregate PMI as reported by Markit, increased from 52 to 52.3. So, the improving manufacturing sector trend of the Eurozone, continues, which is a good sign, and led to European Central Bank (ECB) president, Mario Draghi, to say this morning, that “the need for boosting the ECB’s asset-purchase program was still an OPEN QUESTION.”

Now that certainly doesn’t sound like the same man that just a couple of weeks ago, gave it the old, “I’ll do anything to promote growth and inflation” talk.  And that comment given this morning, is keeping the euro on the bright side of the moon this morning.

The Aussie dollar (A$) is flat to down a bit this morning, as the Reserve Bank of Australia’s (RBA) meeting this week looms over the A$… I don’t believe the RBA will cut rates at this meeting, otherwise, the markets will no longer listen to what they say leading up to a meeting.

Recall that the RBA issued a statement a couple of weeks ago, saying that they saw no need for further rate cuts at this time. But there’s always worry about what these Central Banks will do, and that’s why the A$ is running in place this morning.

I read a piece this weekend about the Bank of England (BOE) meeting this week, which will feature a meeting with BOE Gov. Mark Carney afterward. I read that he’s planning on giving his forecasts for 2016. I’ll betcha a dollar to a Krispy Kreme that he’ll be talking about 2016, will bring about an opportunity for him to remove accommodation from the economy.

In other words, hike rates. Yes, we heard the same thing in 2014. But, the thing I just don’t get with these pound sterling traders is that they sit on the edges of their collective seats waiting anxiously for Carney to speak, and they run the price of the pound sterling up on every mention that he makes about hiking rates.

I would have thought that by now, it would be a case of the boy who cried wolf, and pound sterling would be getting hammered.  But these traders just keep going back for more from Carney’s bag of promises.

Mark Carney’s old country where he spread the gospel that he was going to remove accommodation and then left town before the markets could catch up with him, Canada, doesn’t have a Central Bank meeting this week, but I did want to mention that the Canadian August GDP was bang on with expectations of 0.1% increase, but the year-on-year number came in below the expectations of 1.0% and printed 0.9% instead.

I’m somewhat disappointed in this number, and I think the currency traders were too. Canada will print their latest PMI this morning, so maybe that will help things, but judging from what I read this morning about how funds are leaving Canada at the fastest pace ever since the election results, I’m doubtful.  I already put to bed my currency of the month article, and it’s getting massaged, chopped, and cooked, so I can’t go back and add this info. Not that it would change my overall feeling here.

Norway’s Norges Bank will meet this week. And I can’t help but think that Norges Bank Gov. Olsen, is ready to go “negative”. But first he has to go to zero. And I doubt he’ll hesitate in getting to zero.  You have to feel for him and the country and the currency.

A year ago, things were looking so much brighter in Norway than in the Eurozone. But then the trap door was sprung on oil. And Europe’s largest oil producer, has seen the lights go out on their economy.  So Sweden has negative rates, the Eurozone has negative rates, and Switzerland has negative rates.

Norway is surrounded by countries with negative rates… Ireland to the west, Sweden and Finland to the east, and the Eurozone and Switzerland to the south. The North Pole would have negative rates if anyone lived there except Santa Claus!

But, the Norwegian krone is a bit stronger this morning, along with its kissin cousin, the Swedish krona. And then we have a couple of the “on the fringe currencies”, the Czech koruna and the S. African rand, tearing up the dance floor with their rallies this morning.

I read this weekend that the Emerging currencies had their best month in Rocktober since April, after they got hammered in September, when the world thought that the Fed was going to hike rates. But since the Fed held Steady Eddie in September, the Emerging Markets currencies have worked diligently to recover some of those losses.

I don’t think they’re out of the woods by any stretch of the imagination, especially with the Fed making noise about a rate hike in December…

Speaking of the December rate hike which the Fed is so eager Beaver to make, but have their collective hands tied behind their back by the weak economy. I have a piece to share with you this morning from friend and publishing guru, Bill Bonner, but we’ll save that for the FWIW section today. Until we get there, we have some other things to talk about.  Like gold!

Well, the New Orleans Conference was held this past weekend. We used to attend this conference, but then something happened, and we were no longer invited. Can you imagine that? The Conference that was started around Jim Blanchard’s drive to make individual ownership of gold legal, wouldn’t have us there? Oh well, I digress…

Oh, and that’s right, for all you youngsters that didn’t know this, but in this country, from 1933 to 1974 it was illegal for individuals to own gold in the form of bullion without a special license. But on January 1, 1975 these restrictions were dropped, and individuals could once again buy and own physical gold.

Ok, so much for our history lesson today. but I just had to explain that, because I’m sure a lot of younger people have no idea of this scenario.  So, it was at this New Orleans Conference when a reporter caught up with investment guru Dennis Gartman, who had this to say about the whacking that gold took last week:

“We find it hard to believe that the mere suggestion by the Federal Open Market Committee in its post-meeting communique on Friday that ‘liftoff’ on the overnight Fed funds rate may take place at its December meeting can be responsible for this sort of egregious, serious, and now relentless selling, and we are almost of the mindset associated with the likes of the gold bugs and GATA that some malevolent ‘force’ was behind the selling.” 

You can find that on the Gartman letter here, but you do have to pay a subscription fee to get the letter.

So, gold is down $4 this morning, and once again I’m going to point out something that should be keeping gold on the rally tracks.  Gold research guru, Koos Jansen reported on the Bullion Star website  that during the week ending Rocktober 23rd, 57 tonnes of physical Gold were withdrawn by the Chinese from the Shanghai Gold Exchange (SGE) bringing the total 2015 withdrawals to 2,119 tonnes, and we still have 2 months to go!

And remember I gave you the link to Koos Jansen’s explanation of how he sees the SGE withdrawals as additions to China’s Gold Reserves.  So, we have physical demand still strong, but the price of Gold lags.  Explain that one to me Ollie!

Well, the U.S. Data Cupboard is chock full-o-data this week, starting today with the manufacturing index, which has been falling since last August.  And don’t forget that data dependency is what the Fed is regarding their rate hike, of which Friday’s data cupboard had the PCE data – and it was not anywhere close to the 2% target the Fed has put on inflation.

A lot of the data prints this week will be second and third tier stuff, all leading up to Friday’s Jobs Jamboree. I sure hope the markets don’t go playing turtle until Friday!

Friday, I received my daily letter from friend, and publishing guru, Bill Bonner, And in it he used some very good illustrations to point out how the global economy is in the dumps, and in case anyone has a question of whether or not the global economy includes the U.S. , let me be clear.. .yes it does!  So, here’s Bill Bonner from Friday’s Daily Diary:

The Baltic Dry Index – a measure of the price of transporting raw materials by sea – is hovering near its 30-year low.

Of course, sliding charter rates are a result of supply as well as demand. But it suggests a major, worldwide slowdown in global trade.

And over on the other side of the world, this view is confirmed by the Chinese Containerized Freight Index. This tracks the cost of shipping containers from China to 14 destinations. And it is down 30% since 2013.

And Japanese firm Hitachi – another big maker of yellow construction equipment – just slashed its profit outlook to only half the level of last year. Reports Bloomberg.

In addition to the yellow machines, the red, white, and blue machines are also slowing down. Indiana-based Cummins makes motors for nearly every type of vehicle and equipment on earth. And sales are bad. Per  Bloomberg again.

Chuck again. I thank Bill Bonner for that great illustration. So, once again I ask you, what’s in your wallet?  No wait! I mean once again I ask you, do you really think the Fed is going to hike rates in December? And if they don’t, how will they explain it to Goldman Sachs, who has already come out and said the Fed would hike rates in December!

That’s it for today. I ‘ll button this up and send it on its way, and hope that you have a marvelous Monday!

Regards,

Chuck Butler
for The Daily Reckoning

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