As Oil Bumps Higher, So Too Do Petrol Currencies!

And now… A Pfennig for your thoughts

Good day… And a Tub Thumpin’ Thursday to you!

I wish I could tell you that the euro was a bit better this morning too, but I can’t. It’s a mixed day for the assets, with stocks in Asia, and Europe having good sessions. Following the U.S. rebound yesterday one would think it’s back to normal in stocks here…


Fed member Dudley spoke yesterday. I usually get a kick out of what Dudley has to say, given his nature to “tell it like it is”. Let’s listen in to what Dudley had to say…

“boosting short-term rates off their current near zero levels at the Federal Open Market Committee’s mid-September meeting now looks “less compelling” in light of the market’s volatility and worrisome news out of China.” 

Now if I were a trader, and you were a lady, would you marry me anyway? No wait! If I were a trader, I would have taken that news to mean there’s little chance for a rate hike in September. Then I would’ve traded accordingly, which would mean hammering the dollar.  But that didn’t happen, folks…  Isn’t Life Strange?

The Chinese renminbi got whacked again last night, marking two consecutive whackings. The renminbi is back to the level it bottomed at after the 3 devaluations/depreciations last week. So, a week’s worth of gyrations and we’ve gone nowhere with the renminbi. I told you two weeks ago, August 13, 2015, that I didn’t believe the Chinese this one time, when they said that the “adjustments” in the renminbi were over, and that I saw the renminbi losing more ground as we go through this year.  Don’t believe me? Simply go right here and pull out that day’s Pfennig from the archives!

I did have a good laugh while reading  yesterday. Last night, waiting for my beloved Cardinals to start their game in Arizona, China sent out a press release. They said:  “Chinese GDP is inflated by fraud is an outdated and exaggerated view…”

Apparently Chinese leaders don’t appreciate the naysayer bloggers and pundits accusing them of “adjusting the GDP data higher.”  You know me, I’m not that negative on what the Chinese print. Instead, I take the view that it’s very difficult to capture exactly what’s going on in a rapidly changing economy the size of China.  Then there’s that longtime Pfennig reader, that told me many years ago about how he had a business in China for many years, and that it was his view that one should only believe about 1/2 of what the Chinese say about their economy. Choose your flavor, choose your size… (St. Louis readers will now be hankering for Ted Drewe’s frozen custard)

Oh, and I read this morning that China has been selling dollars to garner the funds needed to buy renminbi. They’ve been doing that to support the currency. From the other things I’ve read and told you about, I guess it’s not just dollars they are selling, U.S. Treasuries seem to be on the selling blocks in China too.

The price of oil climbed back to $40 yesterday and held overnight. That has a couple of the petrol currencies from: Norway and Canada looking perky this morning. In fact the Norwegian krone is the best performer overnight. That’s all good, but it would mean a lot more if the krone was taking its place among the best performers every day!

The rising price of oil is helping the Russian ruble, as the ruble had fallen to the 70 handle and just didn’t have anything going for it — except the large positive interest rate differential. But when a currency’s losses are greater than the interest rate, it’s a losing battle for the currency. That’s not what’s going on there, yet. But it might as well be. I’m very disappointed in the ruble’s performance since May. But overnight, the ruble has really bounced in a favorable direction so, who knows?

Speaking of a currency losing more than its interest rate pays, one of the worst performers is the Mexican peso. It’s down more than 12% this year. There was some hope that Mexico would hike rates when the U.S. hiked rates next month. That’s looking iffy. The peso is trying on the 17 handle for size and it seems to fit quite nicely. Don’t let today’s rebound back below 17 fool you. That is, unless you believe that this is finally the move in the price of oil that we’ve been waiting for and black gold, Texas Tea, will be looking at $40 in its rear view mirror going forward. I’m not with that thought, yet…

So, as I look at the currency screens this morning, I see that for the most part, the currencies are taking shots at the dollar. We do have exceptions though (don’t we always?) The euro is sticking out like a sore thumb this morning. Remember earlier in the week, when everyone wanted to buy euros?

Well, not so much now. The euro has fallen to a 1.1280 level and once again looks tired. One of the other exceptions is the British pound sterling. Nothing big and exciting going on in these countries, just a change of heart by traders who I continue to view as “fickle”.

The Antipodeans (A$ and kiwi) are both on the rally tracks this morning. In Australia, I’m kind of shocked that the A$ is on the rally tracks as the Aussie CAPEX (capital expenditures) fell 4% last month. I would have thought the rate cut campers in Australia would have been out in the streets, shouting and displaying signs that Australia needs another rate cut. But that didn’t happen and I have to wonder if the data was printed under the darkness of night there. Oh well, if they don’t care, I don’t either!

Getting back to the U.S. rate hike possibilities…  I don’t think the markets are giving the Dudley comments enough weight. I guess the over 600 point rebound in stocks yesterday has outweighed what Dudley had to say. But when we get to September and the Fed passes on a rate hike, and the markets all react as though they are surprised, Dudley will simply say, “I tried to tell you all a few weeks ago, but you wouldn’t listen”  Well, I’m listening Mr. Dudley!

My original thought on rates this year was that there would be no hike. And if there was, it would be a very small one, just to make the markets happy and allow the Fed to save face with the markets, as they’ve been telling them a rate hike was coming for what seems an eternity now. I’d like to think that the Fed wouldn’t do that — hike to save face and for no other reason. But I wouldn’t put anything past them. If they do hike we’ll see them quickly realize what a mistake it was.

The Big Boss, Frank Trotter, used to have a Power Point slide that was a picture of a man that had painted himself into a corner. He used it to illustrate what he thought was the case with the Fed. I think it still applies. The economy is so uneven, and in no way ready for a rate hike. But the Fed told the markets that there would be two of them this year.

Uh-Oh… What to do? What to do?

Speaking of the economy, I guess the rate hike campers could hang their collective hats on the data this morning. The 2nd reading of 2nd QTR GDP will print and everyone is expecting a nice, sizable upward revision from 2.3% to over 3%. I’m not buying it. Smoke and mirrors is what I think GDP is made up of. But the markets will take that bait and swallow it, hook, line and sinker. The media will make darn sure that you, the consumer, knows that everything is fine in the U.S. again, and therefore it’s safe to go back into the spending waters.

The U.S. Data Cupboard will also have Personal Consumption for us this morning for the 2nd QTR. This is interesting data, in that it tracks Personal expenditures (spending). Personal Consumption makes up about 2/3rds of final domestic spending, and we all know how important domestic spending is to the GDP number and the economy. This data has been running around 3%, which is no great shakes, but does tell us there is a pulse beating for the economy.

Gold is on the plus side of the ledger this morning, but only by $2. Let’s just call it “flat” for the day, so far. We all know that gold is subjected to so many outside influences (wasn’t that a nice way for me to say price manipulators? HA!) and a $2 gain is small peanuts — like the kind you get on a Southwest Airlines flight!

Silver is up 12-cents this morning, which is a pleasant sign, given the selling that has been going on. I read yesterday that the silver shortage that I warned you about last year, is beginning to show signs of becoming a reality. I read on a GATA release that premiums on silver are the highest they’ve been in 7 years. Uh-Oh… makes you think now doesn’t it?

Now onto today’s “For What It’s Worth”.

Well, at least they’re trying… And no I’m not talking about my 4 year old grandsons trying to swim, I’m talking about regulators…  Here’s snippet from an article that I found on Bloomberg:

European Union antitrust regulators are investigating precious-metals trading following a U.S. probe that embroiled some of the world’s biggest banks.

The European Commission disclosed the review after HSBC Holdings Plc said in a filing earlier this month that it had received a request for information from the EU in April. The watchdog is examining possible anti-competitive behavior in spot trading, Ricardo Cardoso, a spokesman for the regulator, said in an e-mail.

“This is just another potential scandal where fines will suppress banks’ earnings, and rightly so,” said Sandy Chen, a London-based banking analyst at Cenkos Securities Plc.

U.S. prosecutors have been examining whether at least 10 banks, including Barclays Plc, JPMorgan Chase & Co. and Deutsche Bank AG, manipulated prices of precious metals such as silver and gold. The scrutiny follows international probes into the rigging of financial benchmarks for rates and currencies, which have yielded billions of dollars in fines.

Chuck again…

So, we’ve been through this before a couple of times, as the CFTC (commodities regulator) did inquiries into the price action in silver and never found anything…  So, when it comes down to the cheese that binds, I doubt this inquiry by U.S. and European regulators will reveal anything untoward in metals trading by the Big Boys… or as one of my fave daily newsletter writers, Ed Steer, calls them… “Da Boyz”..

Well, that’s it for today. I hope you have a Tub Thumpin’ Thursday!


Chuck Butler
forThe Daily Reckoning

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