It's Central Bank Meetings Week

And now… today’s Pfenning for your thoughts…

Good day, and a marvelous Monday to you! 

Well after I had sent the letter out on Friday, the currencies began to succumb to pressure, the tourniquet that appeared to be wrapped around the euro on Friday morning, soon fell off, and the dollar took the conn and ran with it.  I would like to think that the dollar rally was “data driven”, but the only thing we had on the docket on Friday, was the Markit PMI, which actually did show an increase in manufacturing in September.

I guess the old saying that even a blind squirrel can find an acorn, applies to the Markit PMI.  But I digress…

This morning the currencies are a mixed-bag-o-nuts, and I’m wondering with all that’s going to go on this week, just what the heck anyone is thinking out there in currency trading land. I would think that the prudent thing to do would be to sit still, keep your head down, and be there at the close of the day.

I’ll get to the goings on this week, which there is a plethora of such items, next, but first I wanted to also mention that the precious metals followed along with the currencies on Friday, and this morning are flat.

Are you ready? This is going to be long and tedious, but we have to go through it, because I really don’t recall a week with so much going on before. The markets might want ask the “schedule maker” to rearrange everything, so that they have the “sugar high” from Halloween candy to get them through all this. But, when it’s all said and done, where will the markets go from there?

Front and center on the goings on this week, is the Chinese 5th Plenum, which begins today, and runs through the 29th. This is where policy and directives come, and with China mired in a slowdown, will be looked at much closer than usual.   Then we turn our attention to the Central Banks around the world that will meet this week, with some having a chance of rate decisions and other things.  The Fed will meet, but expect nothing, but blah, blah, blah, to come of it.

The Bank of Japan (BOJ) will meet, and this is one Central Bank that just may announce more stimulus. It has been rumored for a couple of meetings now that the BOJ was seriously thinking of adding more, but think about the fact that now that the European Central Bank (ECB) greased the tracks for more stimulus, and China cutting interest rates and their Reserve Ratio last week, the BOJ could easily slide right into more stimulus.  Not that it would amount to a hill of beans for the Japanese economy.

Just go back nearly 20 years ago, when Japan started their stimulus packages, and ask yourself, what happened to that stimulus, and all the subsequent stimulus packages in Japan over the years?

OK, we’re not even close to finished here. Also meeting this week will be the Reserve Bank of New Zealand (RBNZ).  And this is a Central Bank that very well could upset kiwi’s rally applecart this week, with a rate cut. Everything I’ve read lately from the RBNZ, tells me the RBNZ Gov. Wheeler, is not on board with a rate cut, but the way I look at this, that might not mean anything. 

Let’s first establish the fact that Wheeler is known as someone that never misses an opportunity to bash kiwi strength.  Then factor in that kiwi has been on the rally tracks for the last month, with a detour on Friday, but back on the rally tracks today. I see Wheeler cutting rates to throw cold water on the kiwi rally. He’s that kind of Central Banker. 

I think that the markets are thinking that Wheeler has no axe to grind with a rate cut this month, but I think they are forgetting one important thing…

The last two major Central Bank meetings shouldn’t amount to anything new. Sweden’s Riksbank, should leave their negative rates unchanged, and Russia’s Central Bank of Russia (CBR) will have to leave their internal rates high as inflation is real problem in Russia right now.

Speaking of Russia… I’ve been doing some reading on Russia, where one observer opines about Russia, and how they are on a mission to break the dollar dominance, and one way they might do that is to default on their dollar debt.

Well, that’s just an opinion folks, not that it couldn’t happen but. I would rather we focus on what real right now, and that is that Russia is in a deep recession, which is the result of the collapse of the oil price, and the sanctions that were placed on them by the West over a year ago. But even with these things hanging over Russia and the ruble like the Sword of Damocles, the ruble has been trading in a tight range, and if anything it has moved stronger.

That’s it for the Central Bank meetings this week, but that’s not all! In addition we have some very important CPI (consumer inflation) prints this week.  Especially in the Eurozone, where the Flash CPI reports from all the members will be aggregated and print one final number. I suspect that inflation for the Eurozone move from negative to positive. But even that isn’t going to point to a strong economy, or a move from the recession, but it will be psychological, to move from negative territory. And the poor euro could use some help even if it is just psychological!

Australia will also print September CPI this week. The Reserve Bank of Australia (RBA) recently said that they saw no need for further rate cuts at this time, so it will be important to the Aussie dollar (A$) for CPI to confirm that thought.

Ahhh, and just when you thought it was safe to get back into the water… there’s more!  A GDP report will also be on display this week from Canada, where I’m still waiting for the dust to settle from the elections last week. This GDP report won’t have any “election interference” so it will be good to get a starting point for the new government. I expect that Canadian GDP will continue to be good, not great, and print at a 2.5% increase over the previous year.

When you consider that the U.S. GDP for the 3rd QTR is tracking around 1.5%, Canada’s 2.5% isn’t so bad, eh? The Canadian dollar/loonie has remained pretty Steady Eddie during all the goings on last week with the elections and a new government, so good for the loonie!

So, I read where traders have now pricing a 36% chance of a rate cut in December here in the US. Just two months ago that percentage was greater than 60%…  So, it goes in my mind that gold should be taking information like that and moving higher. 

I was reading a story on the Bloomberg this weekend (I had to find something to keep me from watching the Mizzou offense!) and I always find it laughable when people say and write things like this, comment from the Bloomberg article: “Gold loses out when monetary policy tightens because the metal doesn’t offer interest or pay dividends, unlike competing assets.”   

Apparently, the writer didn’t do their homework, or read Tim Smith’s Sunday Pfennig from two weeks ago!

But you know, when you think about it, I would think that those “Gold Leases” that the “Big Boys” partake in, pay something, right? So, who says you can’t get paid for owning gold? And in India, that soon will not be a problem either, as I told you last week that India will begin their monetization program on November 5th. And here’s something that’s interesting; last week, speculators increased their bullish outlook for gold to the highest level since last February.

I’m as frustrated with gold’s performance this year as the next guy, but when I saw this I really became even more frustrated. Gold has fluctuated between year-to-date gains and losses more than a dozen times in 2015. I know some very astute investors have made a call that gold has seen its bottom. And now we have speculators upping the ante on gold’s outlook, is there something building here? I sure hope so!

So, on the rally tracks this morning we have the A$, loonie, pound, euro, krone, krona, peso, forint, koruna, Sing $, renminbi, gold and silver.  The real hasn’t opened yet, but has really been solidly on the rally tracks lately, with the news I gave you last week, that all the ducks are in a row to impeach the president in Brazil now. And that’s what the markets want!

The price of oil has really slid lower since reaching $50 last month.. This morning, oil is priced with a $44 handle. OUCH! I’m surprised that both the loonie, pound, krone and peso are stronger this morning given the drop below $45 in oil’s price.  The drop in oil price isn’t helping the ruble, this morning.

The U.S. Data Cupboard only has the New Home Sales data for us today. This will be the September print, so once again, there will be a strong push toward the beginning of the month, leading up to the FOMC meeting in September. But what happens afterward, we’ll have to wait-n-see with the report.

Tomorrow we finally get some real data, with Durable Goods Orders, Cap Goods, The S&P/CaseShiller Home Price Index, and then we’ll see the “fluff” in Consumer Confidence for Rocktober.

Well, do you know what will come up on the calendar next week? Yes, after we hear all the bad jokes from the Trick-or-Treaters, after we turn our clocks back an hour (Saturday night), and we come back to work to start work for Chuck’s least favorite month. November 3rd, will be here. And on November 3rd,  the deadline for raising the debt ceiling will come along. Now, you and me know all too well that this is all drama, and that in the end, the debt ceiling will be raised, and the debt can will just be kicked down the street a little further. I saw some comments on this from Ron Paul that I liked:

The U.S. Treasury’s recent announcement that the government will reach the debt ceiling on November 3 means Congress will soon be debating raising the government’s borrowing limit again. Any delay in, or opposition to, raising the debt ceiling will inevitably be met with hand-wringing over Congress’ alleged irresponsibility. But the real irresponsible act would be for Congress to raise the debt ceiling.

Of course Ron Paul, is an Austrian Economics trained economist, which in my opinion is the only kind of economist there should be! 

Ron Paul, like Chuck, are both very concerned with this ever growing monetary balance sheet at the Fed. And now you’re going to say, what does that have to do with the debt ceiling? 

Ahhh, grasshopper, come, sit, and learn.  The more debt you have, the more bonds you have to issue to finance that debt. And with China backing away from the Treasury auctions, and Russia saying “nyet” to buying Treasuries, and other countries finding it perilous to swim in these waters, the Fed will have to step up to the plate and buy more bonds and add to the $4.6 trillion balance sheet. That’s how!

That’s it for today. I hope you have a marvelous Monday!

Regards,

Chuck Butler
for The Daily Reckoning

P.S. Be sure to sign up for The Daily Reckoning — a free and entertaining look at the world of finance and politics. The articles you find here on our website are only a snippet of what you receive in The Daily Reckoning email edition. Click here now to sign up for FREE to see what you’re missing.