China Shows Signs of Momentum Building

And now… today’s Pfennig for your thoughts…

Good day, and a happy Friday to one and all!

There was a lot that went on yesterday and in the overnight markets, so let’s get to work here. First, China printed their 1st QTR GDP, and it was right smack dab in the middle of the Chinese government’s range (6.5 to 7%) at 6.7%, and on the outside that looks tepid right? I mean we I used to report +10% GDP numbers from China.

But some underlying measures, like Industrial Production that saw a better than expected result, indicate to me that there is momentum building in the Chinese economy, and that has set the trading parameters today, allowing the markets to forget about the bad news from Singapore yesterday.

So the risk sentiment is back on today, which means the dollars of Australia (A$) and N. Zealand/kiwi, are on the rally tracks, and dragging any other risk currencies like the Canadian dollar/loonie, along for a ride. In fact, kiwi is the best performer overnight! I still marvel at the action here between the A$ and kiwi. Kiwi has outperformed the A$ this week, and that baffles me, as the Reserve Bank of New Zealand (RBNZ) cut rates at their last meeting, while the Reserve Bank of Australia (RBA) left rates unchanged. But, I won’t fight city hall over this, it is what it is, right?

The price of oil remains steady holding to its $41 handle. That marks three consecutive days of holding $41. Oil Ministers are meeting in Doha this weekend, to discuss a production freeze, but like I’ve said before, I doubt that these guys could ever come to an honest agreement like that, given they all cheat on production numbers now! But, Bless them for trying, eh? 

I can see Russian President, Putin, tearing off the sleeves of this shirt, to show off his guns, and start pounding the podium telling the ministers that they had better agree to a freeze or else. Or else what, Chuck? Oh, come on. I’ve sure done some imaginary role playing this week haven’t I? Well, that’s something that I think adds some thinking to what might be going on, so don’t think for one minute that I’m finished with that!

After the better than the average bear news from China overnight, the Peoples Bank of China (PBOC) decided to wait for it, just a little longer. Wait for it… Ok, they decided to depreciate the renminbi in the fixing. What, what? Things are looking up in China and they mark down the currency? Hey! The mark down was smallish, so I’ll just put this down as the Chinese, once again, are showing the markets that they can’t speculate with the currency thinking they know what the PBOC will do.

The Brazilian real continues to bask in the sun that is being supplied by the chance that president Dilma Rousseff will be impeached. This weekend, the lower house in Brazil’s congress will vote. Recall that the Upper House vote to impeach her earlier this week. The lower house needs two-thirds of the votes to impeach her. It will be a close call, as Rousseff still has supporters that will not vote to impeach her.

I read yesterday that the Brazilian Central Bank (BCB) has intervened to the tune of $20 billion worth in real this week, in an effort to keep the real from getting any stronger. You know me, I’m not for this type of intervention in what the markets want to do. But, right now, it looks like it was $20 billion wasted because the real continue to get stronger in spite of the intervention!

The price of gold got whacked again yesterday down $14 on the day. UGH! Just when it looked like gold was counting down for a moon shot, it sees two consecutive days of getting whacked good. I can hear the price manipulators right now, yucking it up and high fiving each other, telling each other “good job”, and asking, who do they think they are taking gold above $1,250? Like we were going to sit here on our hands and do nothing about that? Yeah, right, we showed them, we showed them good!

Well, they might want to calm down, and go find a place to hide, because now that Deutsche Bank has entered into a settlement agreement regarding the prices of gold and silver, it was revealed yesterday that in the agreement, Deutsche Bank has agreed to expose other institutions purportedly involved in manipulations. Uh-Oh, and according to the report on the Bloomberg, this witch hunt will begin immediately, as Deutsche Bank has agreed to turn over instant messages, and other communications between them and other parties. Stealing when I should have been buying, comes to my mind right now, the great song by Uriah Heep.

OK. I’ll leave that for the investigators. The Central Bank Meetings in the Eurozone and U.K. yesterday didn’t see any changes, as I expected they wouldn’t, but we did see some verbiage from the Bank of England (BOE) regarding BREXIT.  This was unusual to me, and to the markets, who chopped the pound off at the knees after hearing that a BREXIT discussion played a part in the no rate change decision.

I laughed reading that, because, that’s just an excuse. The BOE was never going to hike rates at this meeting, the next meeting or any meeting in the near future! They didn’t need an excuse as to why they didn’t hike rates, everyone knows you can’t, and won’t hike rates any time soon!

I read this morning that Bank of Japan (BOJ) Gov. Kuroda was speaking and mentioned that he was not going to bring up FX moves or currency intervention at the G20 meeting that’s taking place in Washington. Kuroda should know, he’s the person in charge of those items! I also read somewhere else that Kuroda is breathing a sigh of relief this morning as the yen has backed off its all-out assault on the dollar. Yen’s y-t-d gain vs. the dollar now stands at a little more than 10%… Still quite a bit stronger than Kuroda or Japanese PM Abe would like to see yen though. 

The BOJ will next meet on April 28. I would think that the usual thoughts about more stimulus for the Japanese economy would begin to build the closer we get to that date. I personally don’t see any additional stimulus having an effect on the Japanese economy. And maybe, just maybe, PM Abe is beginning to see it that way.

Hey! He could have pinned his colors on the mast of someone else! He doesn’t have to agree with me, but then so far everyone else he as agreed with, has gotten him deeper in the hole. I might as well take the helm, I certainly wouldn’t/couldn’t do worse than what has been done here! HA!

The euro is flat today, after the ECB left things unchanged yesterday. The euro doesn’t seem to fit in with the “risk sentiment currencies” so they can rally and not have the Big Dog, euro, go along with them. Seems strange, but that’s the way love is! Instead, the trading pattern these days is for the euro to rise on safe haven flights, and dollar weakness.

And in India, the Reserve Bank of India (RBI – still the coolest abbreviated Central Bank name) announced that India had booked a narrower Trade Deficit in Feb than a year earlier, and Industrial production in March rose 2%, which was much better than expected! But the rupee seems to be stuck in the mud right now.

I told you yesterday that the U.S. Data Cupboard only had the stupid CPI and the weekly jobless claims, so there was really nothing here to see, except for all those that still believe that CPI is something to hang your inflation gauge hat on.

So, yesterday I went on a tirade about the Fed Governors and their districts saying that overall prices were increasing. I pointed out that March Retail Sales were negative, so no price pressures there, and that the Wholesale inflation (PPI) had slipped in March. Well, along came the stupid CPI yesterday, and while prices when up 0.1% on a monthly basis, below expectations I might add, it fell year on year -0.9%. But overall, the Fed districts saw prices increasing. There you go! They say it happened, so it happened, especially in the eyes of the dollar bugs, who kept the pressure on the currencies yesterday.

Today’s Data Cupboard has two of my fave “real economic prints” Industrial Production (IP) and Capacity Utilization (CAPU) These two have been illustrating a different story about the U.S economy than the one the Fed Gov.’s keep illustrating. And I don’t believe that the March prints for these two will be any different. Look for a negative IP and a drop in the CAPU percentage. We’ll also see the U. of Michigan Sentiment report for the first two weeks of April, and the Total TIC Flows, which have been pushed to the back of the closet by the markets.

I looked out at next week’s data, and it will be a slow week for data, so who knows where that’s going to go take us. But that’s next week, only today is promised to us.

Today, April 15, should be tax day. But for some reason, unbeknownst to me, it was moved to April 18th. Do you have your taxes finished? Already filed? Or looking for an extension?

Well this story is all over the news so I doubt none of you have not heard about it, but I thought it was still FWIW worthy. So, here’s the link to the entire story about the 5 Biggest Banks in the U.S., or, here’s your snippet:

“The nation’s top bank regulators have added an unexpected voice to the growing chorus of critics worried that the biggest American banks, nearly eight years after the financial crisis, are still too big to fail.

The Federal Reserve and the Federal Deposit Insurance Corporation said on Wednesday that five of the nation’s 8 largest banks – including JPMorgan Chase and Bank of America – did not have “credible” plans for how they would wind themselves down in a crisis without sowing panic.

That suggests that if there were another crisis today, the government would need to prop up the largest banks if it wanted to avoid financial chaos.”

Chuck again. I find this timing of this news to be quite interesting given we are in the middle of the election year here in the U.S.  And has to give Bernie Sanders a huge lift, given he has called for the biggest banks to be broken up.  (I’m not a Bernie Sanders supporter, I was just pointing out his stance that plays well in the sandbox with this news)

That’s it for today. All righty then, time to get off this bus today, and send you on your way to a fantastico Friday, and be good to yourself!

Regards,

Chuck Butler
for The Daily Pfennig

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