Risk Sentiment Returns With a Bang

And now… today’s Pfennig for your thoughts…

Good day… and A Tom terrific Tuesday to you!

The safe haven buying yesterday is getting reversed this morning… go figure! One day trading patterns seem to be the call of the day these days. I don’t like it just like everyone else, but I actually prefer the Risk Sentiment to be in play, instead of the safe haven sentiment. And an improved risk sentiment is what we have today…

The New Zealand dollar/kiwi is the best performer overnight, and has reached 70-cents! Risk Sentiment is back in play today because the price of oil recovered yesterday, after dropping $3 the night before on the “no agreement to freeze production” in Doha, oil recovered, miraculously I’ll add, back to a $40 handle, and so all the risk assets get to come out and play today!

The euro, which normally sits out this scenario, is on the rally tracks due to a much stronger than expected ZEW. German Investor Optimism as measured by the think tank, ZEW, rose to the highest level this year at 11.2 from a previous print of 4.3 in March. This marks two consecutive months of increased Investor Optimism in the Eurozone’s largest economy.

You think that China only effects the Asian and Pan Asian sentiment? Think again! Because one of the ZEW’s survey authors said that, “We believe it’s the positive economic news from China that is the main driver, it was the fear of an unstable Chinese economy that has been a drag.”

I told you above that kiwi was the best performer overnight, and right on kiwi’s heels is the Norwegian krone, which really got on board with the recovery in the price of oil last night after the ratings agency, Fitch, affirmed Norway’s “Stable Outlook”. The commodity currencies of Aussie dollars (A$), kiwi, Canadian dollars/loonies, S. African rand, and pushing the envelope even further, the Norwegian krone, and Russian ruble, are all firmly on the rally tracks this morning. And the Chinese didn’t want to miss out on the party to push the dollar down, and the renminbi was allowed to appreciate again overnight at the fixing.

Wouldn’t it be nice if we could have a trading pattern last more than a day or two? it’s one step forward, one step back, two steps forward, and two steps back… But like I said last week, this is the kind of trading that often leads to the end of a trend, and this trend would be the strong dollar trend. The dollar will have its days in the sun, but just like the summer turns to autumn, and the sunlight fades, so too will the strong dollar trend. At least that’s how I see it happening, and it’s my opinion, which could be wrong.

So, are you up to date with this threat from the Saudis? There’s a bill in Congress that would let families victimized by the 9/11 terrorist attacks sue Saudi Arabia, and the White House has indicated that they will veto the bill should it pass in Congress. The only reason I bring this up is that the Saudis issued a warning to the U.S. that if we pass the lawsuit, that they will sell U.S. Assets.

Uh-Oh… the Saudis say they have $750 billion of U.S. Treasuries that they will sell should this bill be passed. That would be a BIG DEAL for Treasuries and the dollar folks. Now I’m not going to open that can of worms and talk about whether the president should sign or veto the bill – no way, you can’t make me! – but I think most of you who know me, where I would be on this…

Proving once again that you can’t keep a good currency down, the Singapore dollar (S$) has begun the slow push to recover the lost ground last week after the Monetary Authority of Singapore (MAS) basically eased rates, by sliding the band to 0% expected in increase for the S$.

I’ve talked about this before but for new readers I’ll repeat this; Singapore does something I wish all countries did — they used the value of the S$ to combat inflation, and not arbitrary rate moves. So, when the MAS moved the trading band that the S$ trades in to 0% appreciation expected, they basically cut rates, as inflation appears to be no problem at this point in Singapore.

The Russian ruble is kicking tail and taking names later this morning, and now trades with a 65 handle. Quite impressive, but still a very long way from the levels the ruble traded in a couple of years ago, before the sanctions. Back “in the day” rubles traded with a mid-30’s handle.

The ruble got a double boost overnight, first from the recovery in the price of oil, and second in the optimistic view of the Central Bank, which issued a statement saying that they expect positive GDP by year-end barring any outside shock. For those of you just joining us for class, Russia has been in a recession that was brought on by the drop in oil’s price, and the sanctions that the U.S. and Europe have placed on Russia for their involvement in Ukraine.

Gold is up $10 this morning, after failing to hold the $5 gain it had in its pocket in the early morning trading, and ended up down $1.60 on the day. The Chinese renminbi denominated gold fixing began today, and that could be the reason for the optimism in gold this morning, for this fixing was supposed to originally begin last April, then six months later and finally today it happened.

I’ve talked ’til I’m blue in the face about this new gold fixing so I won’t bore you with more talk about, other than welcome to the world of gold fixing Shanghai Gold Exchange, I hope it all works out for you!

Silver reached a 10-month higher this morning at $16.68. Silver has really lagged, as gold and platinum have reached for the stars in recent days. And that should be used as a reason one looks to buy silver, as the catch-up factor could come into play. But then one year ago, I saw the commitment of traders (COT) report at a level that the last time it reached that level, silver took off for the moon, and thought, hmmm, should be a buying signal. It wasn’t… UGH!

Well, I told you yesterday to beware the Brazilian real, and that it could reverse its course once the traders realized that while the impeachment brings about hopeful change, the economy is still in the dumps, and that’s what happened to the real yesterday, as it lost about 3% on the day. OUCH! That’s going to leave a mark! With all the risk sentiment spreading around the globe this morning, I would think that the real would stop the bleeding when it opens up. But we’ll have to wait-n-see…

The Japanese yen has reversed the gain it had yesterday morning when the safe haven trade was in play. I’ve talked so much about Japan and the yen recently, that I just can’t get out of the habit of doing so, even when there’s nothing new to talk about! UGH!

The U.S. Data Cupboard is still not yielding anything important. Today we’ll get the pulse of the housing sector with March prints of Housing Starts and Building Permits. Both are expected to reverse the negative feeling in the February print. This week seems to be one of those weeks where we won’t get a lot of first Tier Data, instead seeing the Housing data print six ways from Sunday. This kind of week of no first Tier Data usually lends itself to dollar weakness. But it’s only Tom terrific Tuesday, we’ve got the rest of the week to go!

I took this from one of the Agora publications Strategic Intelligence and you can sign up for it here, and it’s James Rickards explaining the Shanghai Accord to us. Let’s listen in…

The ‘Shanghai Accord’ is a secret plan created by the G-4 (China, U.S., the Eurozone and Japan) on the sidelines of the G-20 meeting in Shanghai, China, on Feb. 26. The plan is to strengthen the euro and the yen and ease the dollar.

With the Chinese yuan pegged to the dollar, this combination gives China financial ease and a competitive advantage over its trading partners. But the G-20 is a high-level club with no secretariat or staff of its own. Who does the dirty work when the G-20 wants to send a message? The answer is the IMF.

The International Monetary Fund acts as the eyes and ears of the G-20 and makes sure all of the members stay in line and live up to their commitments. This article shows how the IMF has already threatened Japan publicly (in polite language, of course). The message is that Japan should not even think about market intervention to weaken the yen. The IMF said, ‘Let the exchange rate move however it wants to.’ That means the strong yen trade will continue. Japan has been warned.

Chuck again. Yes, didn’t I tell you a week or so ago about Japan’s dilemma regarding wanting to intervene to weaken the yen, but the PM Abe was against that saying so in public statements.. So.. Good stuff from Rickards today…

That’s it for today. I’ll get out of your hair for today, and hope you have a Tom terrific Tuesday! Be good to yourself!

Regards,

Chuck Butler
for The Daily Pfennig

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