Dollar Still Holds the Conn Over the Currencies

And now… today’s Pfennig for your thoughts…

Good day, and a Tom terrific Tuesday to you!

The afterglow of the Jobs Jamboree has kept the markets smitten with the report, and that allows the dollar to continue to have the control over the currencies. But not the metals today, as the metals led by gold are all gaining ground. Lost ground I might add, but I don’t want to get jaded here. I’ll just stick with being happy that the metals are gaining vs. the dollar. The Japanese yen, of all currencies I might add with exasperation, is the only currency I can find that is carving out a gain vs. the dollar. I was going to talk a bit about the yen yesterday, but just ran out of time and room. So here goes…

Yen has just reached a 17-month high vs. the dollar. Can you believe that? I know, I know, doesn’t make much sense, but when safe haven buying comes into play, strange things happen, and none could be stranger in the currencies, than to have Japanese yen booking gains and reaching a level that it hasn’t seen since 2014. Nothing has changed with the fundamentals of Japan folks, it’s economy, debt problem, demographics are still what I would call a basket case. So, just like the rally we saw with the safe havens a couple of months ago, I expect this rally to not last too long. So, be careful here folks.

I say “be careful here folks” because of something I’ve been telling you for a few years now, that the Japanese government is hell bent and whiskey bound to get the yen weak. So, this rally in yen has got to get the Japanese leaders steaming, and this could bring on a call to the Finance Ministry to intervene, which would cause a wild swing in the yen, and that’s why I say “be careful here”…

The Reserve Bank of Australia (RBA) did as just about everyone under the sun and moon expected them to do and left their main cash rate unchanged at 2%. And in the statement that followed the rate announcement, the RBA was subdued with their criticism of the A$’s recent strength, choosing instead to mention that the A$ was “somewhat stronger” and then also mentioned that commodity prices had improved, thus in my opinion, telling the markets that the RBA is OK with A$ strength as long as the commodities continue to improve.

The Aussie dollar (A$) took this news and began to move higher in value, but then things got hairy in the currencies and the A$ succumbed to the strength of the U.S. dollar.

China returned from their 1-day holiday and immediately pushed the value of the renminbi down in the fixing overnight. I told you yesterday that China has two BIG reports this week, the national PMI, and the latest report on their FX reserves. I think the FX reserves report prints tonight, but having my hands tied, I can’t make certain of that right now. So, let’s just go with the thought that the FX Reserves will print tonight!

I expect to see that the drain on FX reserves from China’s treasure chest of reserves, will have slowed down, which would be a good indicator that China’s liquidity injections have slowed, and the only reason they would have slowed is that they weren’t needed as badly.  So, hopefully, you see how important this data is not only for China, but also the currencies in Asia and Pan-Asia.

I’ve made the point here in previous Pfennigs that Central Bankers have basically used all the arrows in their respective quivers. But they still have verbal intervention they can use, and the Swiss National Bank’s (SNB) president, Jordan, is a master at this. I don’t know if you’ve noticed the franc’s rise in the currency roundup each day recently. But the franc has had a stealth-like move higher, without a lot of fanfare or pundits pointing it out. And Jordan knows all too well that the franc can’t get out of whack with the other floating European currencies, especially the euro.

So, just for old-time’s sake, Jordan told reporters that: “The central bank has further means of acting in an expansionary manner.” Again this verbal intervention is sort of like hanging the belt on the doorknob on the door to the room where Chuck and his siblings were getting rowdy. It’s a reminder of the consequences of not adhering to the wishes of the Central Bank.

The price of oil has dropped another figure to a $35 handle overnight.  Have you ever heard the great Rev. Al Green’s version of How Can You Mend a Broken Heart? Well, you should! It’s playing on the iPod right now, and I’m associating it with the oil men and their broken hearts. They had the tiger by the tail, and now they don’t. It’s sad. And I can hear you saying, ‘but Chuck, these guys are still making boat loads of money… Are they really?’ With the price of oil below their cost to produce it? Help me mend my broken heart, and let me live again.

The Russian ruble leads the petrol currencies on another ride on the slippery slope. The ruble has become the proxy for petrol currencies.  So, it’s not just the oil men in the pinchers, the countries that depend on oil revenues as a large piece of their economy are also in the pinchers because of the drop in the price of oil. And even the countries like Canada that has less dependency on oil revenue than say Russia, finds itself searching for new ways to generate lost revenue.

Speaking of Canada… today we will see their latest trade figures. It would go a long way toward helping the loonie turn around the recent bout of selling, if the trade deficit narrowed, which is what I’m expecting here today.

I bet you thought I was finished questioning the markets being smitten with the BLS jobs report, eh? Well, let’s just say this is icing on the cake for me. Yesterday, the Fed LMCI (Labor Market Conditions Index) printed and showed that in March, when the BLS was pulling rabbit out of its hat with a 215,000 jobs added number, the LMCI fell 2.1 points, adding to the deterioration of the index in the last couple of months.

So, the Fed members aren’t smitten with the Jobs Jamboree, and if I were king I would decree the markets not be smitten with it because it honors the dollar, but until somebody comes around and puts a crown on my head and wraps me in a royal cape, we’ll have to carry on despite the markets’ shortcomings!

The U.S Data Cupboard yesterday, was interesting in that the data that printed all printed weaker than expected. But then, what else is new? HA! The ISM (regional manufacturing) for the New York region printed at 50.6 in March, falling from 53 the previous month. I just mentioned the LMCI falling 2.1 points. Factory Orders final for Feb was negative -1.7%, Durable Goods Orders was negative -3.0% (revised down from -2.8%) Capital Goods Orders were negative -1.3% (revised down from -1%).  

So, for a data dependent Fed, they sure couldn’t find anything good here.  But what are the markets looking at that have them so lovey-dovey with the dollar? Doesn’t this data make the case that the Fed can’t hike rates?

Today’s Data Cupboard has the Trade Deficit for Feb to print. Look for a deficit of $46 billion, and that’s about it, other than some off the beaten track data reports from Markit, and IBD. Oh wait! Jammed in there today is the March ISM Composite that puts together the performance of the manufacturing and services sectors for one index. But the markets don’t usually pay too much attention to it since the individual sectors have already printed. So, not a real strong day for the data, that might keep the dollar holding the conn.

Well, like I said above, gold is on the rally tracks today, after losing another $6 yesterday. This morning gold is up $16 so it has that going for it! It is April, right? And what was it that April was going to bring to us? (besides showers! HA!) That would be the Shanghai renminbi denominated gold fixing. Well, it hasn’t started just yet, and when it does, I don’t think we’re going to see any major moves in the price of gold. But as time goes on… wink, wink.

I read a piece from James Rickards about the Shanghai gold fixing, and he theorized that China still has about 3,000 tonnes of gold to buy and therefore they would not allow the gold fixing to rise too much until China could buy what it needed to give it the largest gold reserves in the world, before allowing the gold fixing to rise. Makes sense to me. But what that tells me is that the government is going to have its hands in the cookie jar here, and I don’t like that one iota. But you always get some bad with the good.

Well, have you heard about the Panama Papers? My email box has been inundated with links to different viewpoints on these papers which allegedly is documentation that there has been misconduct by the wealthy and powerful. So, I tried to nail down the most conservative of the links and came across this one in the USA Today. So, here’s that link, and here is the snippet:

The exhaustive list of foreign leaders and famous people exposed in a massive leak of confidential documents held by a Panamanian law firm illuminates a sprawling network of offshore investment accounts often used to make secretive investments and pad luxury lifestyles.

Expensive yachts, luxury homes in London, ownership of a candy company, investments in construction companies are just a sampling of the benefits reaped from these complex financial dealings, many of which may be entirely legal. They reveal the inner workings of the financial lives of those with wealth and power across the globe.

The list of people tied to offshore activities includes about 140 politicians from more than 50 countries, including 12 current or former heads of state, with links to Panama law firm Mossack Fonesca.

‘We have not once in nearly 40 years of operation been charged with criminal wrongdoing,’ the law firm’s spokesman, Carlos Sousa, told McClatchy DC. ‘We’re proud of the work we do, notwithstanding recent and willful attempts by some to mischaracterize it.’

Mossack Fonseca director Ramon Fonseca told Reuters that his firm was the victim of targeted hacking that exposed the documents. He said the ‘vast majority’ of the offshore companies set up by his firm were for ‘legitimate purposes.’

Chuck again. As if we didn’t already know that this stuff went on, but I find it to be quite interesting the lengths that were gone to, to keep this stuff under the rug. If I were wealthy and powerful, I would say here is what I’m doing, because I can! HA!

That’s it for today. Now let’s go have a Tom terrific Tuesday, and be good to yourself!

Regards,

Chuck Butler
for The Daily Pfennig

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