Fed Meeting Highlights Busy Data Week

And now… today’s Pfennig for your thoughts…

Good day, and a marvelous Monday to you! 

We begin this week on a slow note, data-wise, but that’s no indication of what will come the rest of the week, as the data cupboard has been restocked and will print real economic data like: Retail Sales, Industrial Production, Capacity Utilization, and of course we will have a Fed FOMC Meeting to ice it all down.

Remember in January and February when all the talk was about how this and that country would be doing something with rates at their March meeting? We’ve already seen the Central Banks of Australia, New Zealand and Canada meet this month, and now, we’ll get to see the Big Kahuna, the Fed meet on Wednesday. Three months have passed since the Fed hiked rates in December, and then left them unchanged in January. What will they do this week?

The markets are still on fence, although the Fed Funds Futures are not buying the Fed rate hike talk this week. I still believe that the Fed needs to add arrows to its quiver, for future needs, and will therefore hike rates on Wednesday.

That fear that the Fed could very well hike rates, even though no rate hike is priced in over at the futures markets, currency traders are not completely sold on no rate hike. And they have decided to buy dollars this morning ahead of the Fed meeting on Wednesday.  I actually tend to believe that this will be a good week for the dollar, given that the Fed does hike rates… IF they decide to leave rates unchanged, then all bets are off on a good week for the dollar!

The euro is down 1/4-cent this morning, after recovering throughout the day on Friday. There were three states in Germany that held elections this past weekend, and all three didn’t go along with Chancellor Angela Merkel’s party, and that news has helped to weaken the euro this morning. In fact, as I look out at the currencies this morning, it appears that most are giving up about 1/4-cent.

There are exceptions to that, as usual. Today, the exceptions include the S. African rand, and Russian ruble, which both are down by larger margins than 1/4-cent.

The Chinese renminbi was allowed to appreciate at the fixing again last night. This appreciation was more in line with what we used to see more often than not. This past weekend China’s Peoples Bank of China (PBOC) Gov Zhou, gave a speech, and I think it would behoove us to listen in.  So with no further ado…

Governor Zhou spoke during China’s annual parliamentary session over the weekend. Key comments were that FX market expectations will normalize soon, there is no need to rush to buy USDs, that he’s unable to forecast if the RMB’s volatility will end, China won’t use major stimulus to reach its economic growth target and will continue prudent monetary policy. Further, he said China would not rely on exports for GDP growth, and will focus on domestic demand instead.

Of course he didn’t wait to see the results of the latest domestic demand numbers before saying all that. Because if he had, he wouldn’t have been so brazen about saying the government wouldn’t rely on exports but domestic demand instead. Chinese January Retail Sales dropped from 10.7% to 10.2% year on year. Industrial Production (IP) dropped from 6.1% to 5.4% annually also in January.

These are key components to domestic demand, and with them dropping, I don’t see how China can meet their lofty goals of 6.5 to 7% GDP for this year. But they’ll try everything allowed to get there, you can bet your sweet bippie on that one!

Well, I’ve been forgetting to check and then include the IMM Futures Positions and I realized that, when I was going through my emails on Sunday. So, here’s the latest scoop from the IMM Futures Positions. USD ($) longs were reduced by 10,000 contracts to 53,000 contracts. Still quite a few long position contracts for the dollar, but seeing it drop by 10,000 gives us some insight as to what the traders are thinking for the week ending March 8.   

The Biggest move was in the AUD (A$), which saw a week to week increase of 12,000 contracts for A$ long positions, and they reached their highest level  since September of 2014. I told you during that week that the “risk sentiment” appeared to have changed for the A$ and kiwi’s benefit, and these positions changes confirm that!

The price of oil has slipped back below $38 overnight, and that has risk sentiment on the back burner this morning. And that also means that the Petrol Currencies are struggling this morning. Mexican pesos, Russian rubles, Norwegian krone, and Canadian loonies are all negative this morning on the slippage in oil’s price.

The Brazilian real hasn’t started trading yet this morning, and this Petrol Currency might find it difficult to see selling take over, due to the news that the impeachment process of Dilma Rousseff is gaining traction. I’ve explained why this impeachment process is helping the real recover value more than a few times before, so I won’t go into that again. But just know that it’s dangerous for these currencies to get so involved in politics.

For instance, with the real, let’s say that Rousseff ends up defeating the impeachment and remains as president of Brazil. The real would get crushed, as all those long positions that were betting on an impeachment get unwound.  It’s just better if currencies stay out of the political process. Unfortunately, it’s too late for the real, it’s all-in on this impeachment process, and has been since the impeachment was just a whispering campaign.

The S. African rand is really taking one to the mid-section this morning… OUCH! That’s going to leave a mark! All the talk of a rate hike at the next S. African Reserve Bank (SARB) this morning, have begun to fade, and now the markets are feeling like there will be no rate hike, and that has really put kyboshes on a rand rally.

This currency is so volatile that you have to be really ready for the wild swings, and that’s why I’ve always thought it better to own rand in a basket with other currencies to water down the rand’s volatility.  For when the rand is good, it’s good, and when it’s bad, it’s bad. Reminds me of a Grand Funk Railroad (RFR) song early in their recording career. When you’re bad your bad, and when you’re good you’re good, but if you’re good, you’ll live forever, and if you’re bad, you’ll die when you die, you’ll die when you die.

I told you above that the price of oil has slipped back below $38 overnight and that was hurting the risk sentiment. But that wasn’t all that was making it even harder to breathe for the risk sentiment currencies of Australia and New Zealand. The weaker domestic data that we talked about above from China is also to blame for the weakness in A$’s and kiwi this morning, although having said that, the A$ is attempting to win back some lost ground as I write.

The Reserve Bank of Australia (RBA) will print their meeting notes from their last meeting that took place a couple of weeks ago. I think the markets are anticipating reading the notes, due to the fact that the statement following the decision by the RBA to leave rates unchanged, was vague at best. The markets are thinking that they will be able to get a better reading of the pulse of the RBA. I have to step back and look at this differently than the markets. What makes them believe that there will be anything for them to take from the minutes? If I were a betting man, or a trader with deep pockets I would take the opposite side of their position.

Well, did you like the currency of the month article that was posted yesterday in the Sunday Pfennig? It was in your email box early yesterday morning, actually an hour ahead of when it usually posts, because we had to spring forward with the clocks this past weekend! HA! Oh, and the currency of the month was the Singapore dollar.

And right on cue, the Sing dollar is weaker this morning. The move is small, but a negative move nonetheless, which I could have predicted, given that I talked about the Sing dollar yesterday. What is it that I call this? That’s right, grasshopper, it’s the Chuck kiss of death!

Gold is giving back $7 of its value this morning.  And this has to all be tied to the fact that not all traders are on board with the thought that the Fed won’t hike rates this week. Of course, one has to wonder what they are thinking given the fact that since the December rate hike by the Fed, gold has gained more than 19%. So, why would gold traders fear another rate hike by the Fed, given that the first one in nearly a decade only helped gold!

The Daily Reckoning was pushing Jim Rickards new book titled: The New Case For Gold, last Friday, and they had this quote from Jim. “There are only two ways investors know something about gold,” Jim told me at the outset of our partnership. “You either studied economics before 1971,” which Jim did at the Johns Hopkins School of Advanced International Studies. Or you’ve read an Agora newsletter.”

I read that and I thought. Hmmm… I did neither! I wasn’t old enough to study economics in 1971, and I first I learned about gold was from the Great Hy Minsky. And then years later, it was brought back into my life by the marketing guru, and writer extraordinaire David Galland, and after those two people had pounded the reasons why gold was the real currency into my head, I read about it in the D.R. Back in the days when Addison Wiggin and Bill Bonner wrote the letter from France!

Well, I mentioned the U.S. Data Cupboard above, and brother does it ever get a workout starting tomorrow, and through the end of the week, which will end with everyone having a hangover from the previous night’s celebrations from St. Patrick’s Day! So, I won’t spend a lot of time on the Data Cupboard today, given it will dominate most days this week, with the FOMC meeting on Wednesday as the break for data.

St. Pat’s Day is the day I begin my spring vacation, which will be shorter than usual this year, as I’m only taking a week off of getting up before the farmers and writing. And it just so happens that it coincides when my spring training buddies are here. Then next week, 1/2 of the family will come down, and I get to see my darling little Delaney Grace. She’s such a cutie, and I miss her.

Mr. Bazooka (Mario Draghi) had to be sweating bullets on Friday as his attempt to throw the euro under the bus didn’t really work. I had a dear reader send me a note with a novel idea. He told me that he “viewed Bazooka’s adding Corporate Debt (toxic debt I might add) as hiding it on the ECB’s ledger until everyone forgets about it.” He then went on to say, ” I wish we could run our personal checkbooks that way, transfer the debt to a secret ledger, and forget about it, and then maybe increase it later thinking we’d ‘solve it'”

Now that sounds just like something the government of giving away everything for free would do for us. Go ahead write off that debt, and make believe you never rate it up so high. UGH!

I received an email from an old friend on Friday. Sean Hyman, he of technical trading wizardry! He just wanted to make sure I saw this article that appeared in the Business Insider. Now that’s a publication that I can be sure I won’t get my wrists slapped for sending people to! Here’s the link to the whole article, and here’s the snippet:

Last week, I talked about big changes afoot in the world’s top gold-consuming nation, India. With the government there imposing a surprise sales tax on gold, in an apparent attempt to further curb demand.

And the last few days, things got a lot more serious for the gold market in this critical locale.

One of the immediate effects of the 1% sales tax announced on February 29 was a massive outcry from India’s jewelers. Who launched a full-scale strike on March 2 to protest the levy.

That work action has reportedly brought gold sales in the country to a standstill. With one professional in the Indian refining industry telling Platts on Tuesday that there is ‘no buying anywhere’ across the nation

Chuck again. Well, that wouldn’t be good news for gold. But, the article did go on to say that there were reports that the Indian jewelers were ready to make a compromise with the government in order to get back to work. I sure hope something here can be worked out, because it doesn’t do anyone any good to have things shut down.

That’s it for today. I hope you have a marvelous Monday and that you remember to be good to yourself!

Regards,

Chuck Butler
for The Daily Pfennig

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