It's PMI Day!

And now… today’s Penning for your thoughts…

Good day, and a tub thumpin’ Thursday to you!

Oh, tomorrow. It will be a Jobs Jamboree Friday here in the U.S. The first of the 3 that the Fed will see before they meet in December, which now has become the new March, June & September, months that were supposed to see rate hikes. Of course, I’m not a believer of this hocus, pocus talk about a rate hike in December, but I’ll play along with everyone, just to see how they are rationalizing the rate hike talk.

The Bond Guys (industry term, I know there are women in the field) sure don’t believe there’s going to be a rate hike. The yield on the 10-year Treasury has fallen to 2.05%. On Monday, it was 2.13%, so the yield is going the wrong way for a rate hike to be on the Bond Guys’ collective minds. But that doesn’t stop the Fed members from continuing to talk about 2015, is the right time to hike rates.

I think that all that talk, that we’ve heard for over a year now, is not good for Fed credibility. And in the end, that will hurt the dollar.

U.S. stocks might be teetering, but U.S. Treasuries are taking up the slack. And that keeps the dollar well bid. This morning, the currencies are mixed again, with the Aussie dollar (A$) once again gaining 1/2-cent and the New Zealand dollar/kiwi not far behind the A$’s gains.

The euro, is again on the selling end and not able to leave the porch to chase the dollar down the street. If this keeps up, the Big Dog, euro, might just lose some of the fear that the little dogs have to chase the dollar down the street, without the Big Dog.

It’s PMI Day! Tomorrow might be the trumped up BLS Jobs Jamboree, but today is more important to me, for we’ll see the color of PMI’s (manufacturing indexes) from the two largest economies in the world. China has already printed their PMI last night, as they prepare for a week-long National Holiday. And China’s PMI is the main reason the A$ and kiwi are stronger again this morning, for the PMI gained last month to 49.8 from 49.7 in August.

No, the gain in the index wasn’t anything to get that excited about, but in China these days, an inch up is like a huge step forward, especially when the expectations were for the index to remain flat with some expectations coming in with a negative for the month.

I guess what this tells us is simply that China hasn’t fallen into the deep dark abyss that a lot of analysts believe they are going to fall into. Not yet at least, eh?  I really don’t believe that China will take a trip to the deep, dark abyss. But, the Chinese economy will continue to tease those naysayers.

The U.S. ISM (they changed  the name from PMI a few years ago, but it’s still a PMI to me!) will print, and is expected to fall again in September from 51.1 in August to 50.6 in September. This data set has been in a downward trajectory for over a year now, and yet, most people, analysts, economists, etc. have refused to acknowledge this as a problem in the U.S. economy. But not me!

It will be small victories for a while when they can get them in China. so, be patient.  I don’t think though that the renminbi is out of the woods, so to speak…  I do believe that there will be opportunities for the Chinese government to push on the renminbi in order to allow exports to recover.

I sure hope they don’t resort to that sort of thing, for it sure hasn’t worked throughout the world, but I sure can’t stop them from doing this, and neither can anyone else. So, we sit, and watch, and hope that the Chinese are smarter than the average bear, when it comes to dealing with their economy and currency.

Oh, and one more thing on China today. I got to see the IMF’s Special Data Dissemination Standard for the month of August, yesterday. I hear you saying, what the heck are you talking about Chuck? Well, among other things that the IMF reports on each country,  they also report each country’s FX reserves.

Now it was thought that China’s FX reserves had taken a HUGE hit in August, for that was the month they had to defend the currencies after they themselves had depreciated the currency 4.6%. And suffer a HUGE drop they did, falling $94 billion in August.  But let’s keep this all in perspective. China’s FX reserves after the $94 billion drop stood at $4.15 trillion. I’m not worried, are you?

The euro just can’t find a bid this week. A weak CPI print, a weaker PMI, and the “other stuff” like the problems with VW, Deutsche Bank, and the refugees, are just piling on the euro this week.  Actually, I think the euro has been quite resilient with all these things piling on at the same time.

The price of oil has climbed back above $46 this morning, and that has helped the Norwegian krone, Mexican pesos, Russian ruble, and  Brazilian real to rally.  But in reality, the price of oil has been in a tight trading range between $44 and $46 and these blips upward seem to get snuffed out pretty quickly.

I read a report yesterday about how Brazilian petrol company, Petrobras, announced that they were going to push the price of their crude higher.  Hmmm, sure doesn’t sound like something I would do, without the cooperation of my oil producing partners around the world. But they did, and we’ll have to wait-n-see how that works out for them!

I told you yesterday’s U.S. Data Cupboard didn’t have much. But what it did have made the markets stand up and take notice. The Chicago region PMI (manufacturing index) dropped like a rock in September to an index number of 48.7 from 54.4 in August.  This number represents a “well below the expansion/contraction number of 50”.  This is a HUGE drop folks, and yes, I know it’s just a regional print, and they normally don’t give us much of an indication of the national ISM number will be.

But looky there! We don’t have to wait very long for the national ISM Manufacturing Index number, as it will print today!  In the last Review & Focus I pointed out that in August of 2014, the index number here in the U.S. was 58.1 (that was a strong number!), but that in August of 2015, one year later, the index had fallen to 51.1.  And now, I truly expect the September ISM index number to have fallen further, and maybe even testing the 50 level.

As I said in the Rocktober R&F, “Any number above 50 represents manufacturing expansion, but this index number is trending the wrong way.”

Today’s Data Cupboard is well stocked ahead of the Jobs Jamboree tomorrow. First up will be the Challenger Job Cuts for September. Then the Initial Jobless Claims that print weekly, followed by the aforementioned Sept. ISM, and then finish it all up with Vehicle Sales .

And gold is flat right now, but has been down a couple of bucks overnight.  Palladium continues to outshine its brothers in arms, gold, Silver and Platinum.  I was thinking about gold yesterday, and started jotting down some notes.  Here’s what I had on my mind. You know, I’m asked all the time by people, in fact, I was asked just the other night, why I buy gold.  My standard, normal answer is simply that gold is a store of wealth. It has no liabilities, and is not issued by the government, and in buying gold I swap paper money for the hard asset, you know. something real!

And while I’m not enamored that the price of gold has sunk in the past few years, I don’t use the price as a reason to sell, my store of wealth.  In fact, gold could go back to the $250 ounce price it was when I began buying it, and it wouldn’t tempt me one iota to sell.

Now, you can sit there, and shoot that full of holes if you wish. And Call me names like: A gold Bug, or the hoarder of a barbaric metal. And I’ll just say. “sticks and stones may break my bones, but your words will never hurt me” NEENER, NEENER, NEENER!  Ok, I have to admit I had fun with that last part. Put a smile on my face for the first time this morning!  I also have to add that I find that many times, I’m sitting here typing my fat fingers to the bone, and think, Whoa, that’s funny! And then think, well, at least I think it’s funny! So, in the end I write to amuse myself! HAHA! Not really.

Well, I usually have quite a few arrows in my FWIW section quiver to choose from each day, but not today. So, I’m really stretching here. I found this here. And here are the snippets:

The People’s Bank of China said late Wednesday that foreign central banks, sovereign wealth funds and international financial organizations will be allowed to trade foreign exchange in the onshore market.

The PBOC said overseas institutions need to register with the PBOC. They can choose to use the PBOC as an agent bank, find their own agent bank, or simply trade directly in the interbank market.

All products, including spot forex, forwards, swaps and options are open to foreign institutional trading, the bank said.

Chinese Premier Li Keqiang said in early September that the government will further open up the domestic forex market to overseas investors. Beijing is trying to narrow the spread between the onshore and offshore yuan markets to form a unified price and curb arbitrage trading between the two prices.

Chuck again. Just another step toward allowing the renminbi to float, folks. You have to have liquid markets, and dealers by the truckload to have deep trading markets for a floating currency, and China has been working toward this goal for a number of years now. This represents just another step in working toward that goal.

That’s it for today. I hope you have a tub thumpin’ Thursday! See you back here, tomorrow, same Bat Time, same Bat Channel!

Regards,

Chuck Butler
for The Daily Reckoning

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