The ECB Calls, Draghi Listens

And now… today’s Pfennig for your thoughts…

Good day, and a wonderful Wednesday to you!

I always start my morning by taking a quick look at the currency screen, and then going to the overnight news. This morning those two different screens are telling me two different stories of what’s happening.  The news articles were all about how the dollar was moving back to the front of the class, but the currency screens tell a different story! UGH! Serenity Now! 

Yes, the euro is down, along with the currencies of Denmark, Switzerland, Poland, Czech Rep, the U.K. and China. The remainder of the currencies are carving out gains vs. the dollar this morning, led by the Aussie dollar (A$).

As we discussed yesterday, we have two Central Bank meetings on the docket today. The Bank of Canada (BOC) goes first. The rate decision here is a 50/50 call, so I wouldn’t be surprised to see the BOC leave rates unchanged, or cut them. I told you yesterday, that the markets were fearful that BOC Gov. Poloz would opt to cut rates, since the Canadian dollar/loonie had been on the rally tracks for two months. Today, I guess traders have conquered their fears, as they push the loonie higher.

The Reserve Bank of New Zealand (RBNZ) will meet this afternoon for us (tomorrow for them) And here too, we have a 50/50 call on rates. The overall consensus is that the RBNZ will leave rates unchanged, but I have to say that I’ve read on more than a few occasions lately that RBNZ Gov. Wheeler isn’t happy with the kiwi strength, and if you want to do something about currency strength, Wheeler knows what to do. First talk it down, then cut rates. Kiwi traders are pushing the currency envelope further out on the desk right in the face of the RBNZ and Wheeler this morning, taunting him, it does appear to me.

I mentioned above that the euro is down this morning, as the European Central Bank (ECB) meets tomorrow, as the calls for additional stimulus are mounting, and ECB president, Mario Draghi, has good hearing. The Eurozone’s largest economy, Germany, saw some good data yesterday, so let’s go to the tape on that news…

In Germany yesterday, Industrial Production or Output as some like to call it, surprised the markets with a big upward move in January vs. December. January IP rose by 3.3% after only rising by 0.9% in December. I probably told you in December, and if I didn’t I should have and shame on me, that December in Germany has to be much like August in Germany, not weather-wise, but vacation-wise, as it’s a holy month and production slows. And this is quite evident by January’s large upward swing! Now, this report doesn’t mean that Germany is out of the woods, and the deeper the global growth goes into a funk, the more risk that Germany’s export sector has to take on. But for now, it appears that maybe Germany has bounced out of the December holiday laden slowdown.

As I said above, the Aussie dollar (A$) is the leader of the pack today. And believe it or don’t, but the A$’s move overnight and this morning is based on fundamentals! Strong fundamentals at that! You see, Aussie fourth QTR GDP printed better than expected at 0.6% from the upwardly revised 3rd QTR GDP print of 1.1%. The ratings agency, Moodys, couldn’t say enough gushing praises about Australia after the print. Let’s list a couple of them:

1.      Moodys says robust GDP is credit positive because it demonstrates Australia’s resilience to external shocks.

2.      Australia’s economic performance is strong in global context.

I know this is all a rear view mirror snapshot of what has already happened in Australia, but if you recall, all the time this was going on, I was telling you that the Aussie economy didn’t need another rate cut, and look who was right!  It didn’t hurt to have the strongest job growth on record in the quarter, but I didn’t hear anyone else out there saying that Australia didn’t need a rate cut.

The Chinese renminbi saw its run of strong appreciations at the fixing come to a halt last night, as once again, the Chinese prove to the markets that the currency moves are not a ONE-WAY Street..You know, there are a ton of writers, observers, economists, and traders out there that believe they know what’s going on in China. I laugh, hysterically, because they don’t know Jack! And I don’t either! But I don’t pretend to know what the Chinese are doing with these daily moves in the currency, they are what they are to me.   

I will say that I like to talk about what I see the Chinese doing in the long run. But then that’s just what I see, I don’t have any “inside information” or someone on the “inside” there. And here’s where I’m going to say that I’m walking toward a different path than others here. I’m walking on the path that China will not go for another deep devaluation of their currency like they did late last year.  Now that doesn’t mean the Chinese will stop the depreciations. It means that in my opinion, which could be wrong, the Chinese will not use another major deep devaluation of the renminbi.

The price of oil remains above $37 this morning. And the petrol currencies from Canada, Norway, Mexico, and Brazil are all benefitting from these latest moves higher for the price of oil. The Russian ruble wasn’t participating with the other petrol currencies’ rally at first, but has come around to a positive gain this morning. This all happening while I was writing!

I had a dear reader suggest something to me yesterday and the more I think about it, the more it makes sense to me. Here’s the idea: first we all know that the shale oil producers are falling to the side of the road at alarming rates, as they have tons of loans for equipment that they bought, with loans priced with oil at a much higher price, right? Who holds those loans? And who would have to write off the bad debt, should the shale oil producer go bankrupt? Are you following me here?

So, the reader thought, that maybe, just maybe because you never know, that the price of oil was being manipulated higher right now to keep the whole scenario of bankruptcy and debt write off from happening.  Put one and one together and you have the alleged manipulator. Hmmm, try that on for size, it’s not a one size fits all kind of thing. And I thought that it might get you all thinking this morning. That’s all.

Gold is down $9 this morning, after getting sold $6 yesterday. When I left you yesterday, gold was up $8, and soon after sending the letter out it had moved higher to up $11, but then the trap door was sprung, and $17 of gains were taken out of gold. Platinum got whacked even harder by $20! There’s been a huge movement of physical silver to and from the COMEX vault.

Now, I’m not your first or second pick as someone that knows the ins and outs of the COMEX Vault. But what I do know is that over the past eight weeks, nearly 70 million oz have been physically brought into or taken out from the COMEX silver warehouses, a weekly average of 8.7 million oz. Not only is this more than half of what the world mined over the past two months, it also represents a stunning acceleration of the pace of inventory turnover from what it was prior to eight weeks ago. And that to me is an indication that physical silver is getting tight, and that’s usually a good sign for price discovery in a supply and demand environment!

The U.S. Data Cupboard is bare again today, with only some third tier data prints that no one even looks at with any eye toward moving a market. And I took a quick look at tomorrow’s data docket, and it’s more of the same-o, same-o, and in a week of little or no data, the dollar usually fares well. But not this week, so far! Could that be the early signs of a change in sentiment toward the dollar?

I have another TJATP for you today. For those of you new to class TJATP stands for “Things Just Aren’t That Peachy” in regards to the U.S. economy, that would otherwise be said to be peachy if you listened to our beloved Central Bankers. Today this is brought to you by the folks at the National Federation of Independent Business (NFIB) (and truthfully, I’m not trying to become the Mogambo Chuck, as one reader said of me last week, HA!).

The NFIB puts out a monthly Index of small business optimism, and, well, I’m sure you can guess what it indicated since I’m talking about it under the TJATP section! The Index dropped to 92.9 in February, from 93.9 in January, and surprised the markets, because they were thinking that the Index would rise to 94. The components of the index include labor and compensation. And both of these components were dismal, with 22% (27% in January) of the firms reporting raising net compensation, or having plans to do so in the next few months, and the labor component reported that Plans to hire, dropped to just 10%… Uh-Oh. That wraps up the TJATP for today, I don’t know when I’ll have stuff like this but when I do, you can be sure that I’ll write about it!

Well, the economists that can’t believe any of this TJATP stuff, would say that small businesses are having difficulty hiring qualified people and that’ why the plans to hire hit an all-time low of 10%. I say, show me the proof! I’m from Missouri. Show me! Because I’m not buying that line one iota.

I read this article on Reuters, and all I could think about while reading it, was “Green Shoots”. Remember “Green Shoots”?  In April 2009, Big Ben Bernanke, the Fed’s former Chairman, told 60 Minutes that was seeing “Green Shoots” showing up in the economic landscape. And we all know what happened with those “Green Shoots”, they required three rounds of Quantitative Easing, and a decade of near zero interest rates, and they still couldn’t take off.  Well, this article is about fed member Fischer who is seeing inflation. You can read it all here, and here’s the snippet:

Inflation is showing signs it could accelerate in the United States, a top Federal Reserve policymaker said in comments that back the view that the central bank will hike interest rates again this year.

In a speech before an economics conference, Fischer said America is currently ‘in the vicinity of full employment’ and tight labor markets have a history of stoking faster price increases.

‘We may well at present be seeing the first stirrings of an increase in the inflation rate,’ Fed Vice Chairman Stanley Fischer said on Monday in prepared remarks, adding that faster inflation was ‘something that we would like to happen.’

Chuck again.  Like I said, it reminds me of the Green Shoots talk..  I could go back to review some Pfennigs from around that time, and I’m sure I was having a lot of fun talking about Green Shoots..  In fact, if I  think of it later, I’ll go dabble in the archives for a Pfennig from around that time to see what I said about it, and tell you tomorrow. I can’t promise anything, given everything, but I’ll try.

And with that little ditty, I bid you good day, and hope you have a wonderful Wednesday. Be good to yourself!

Regards,

Chuck Butler
for The Daily Pfennig

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