Fed's Beige Book Gets Dollar Bugs Excited

And now… today’s Pfennig for your thoughts…

Good day, and a tub Thumpin’ Thursday to you!

Well, in the final days of a star, it burns the brightest, and so it is with the dollar, folks. One would have thought the awful print in March Retail Sales would have been a reason to sell dollars, but the markets decided that the upbeat sounding Beige Book was more important than Retail Sales and so they went with the Beige Book, and bought more dollars.

It makes no sense to me, folks. For when, in the past, as the Beige Book even been mentioned as a reason to buy or sell dollars? It’s as if the markets were reaching for straws, and that’s an indication to me that the dollar’s strong trend is getting long in the tooth.

On Monday, the euro was pushing through the 1.14 handle, this morning it is barely holding on to the 1.12 handle. Now, I get the fact that the European Central Bank (ECB) is meeting as I write this morning, and that they could announce some very damaging changes to their monetary policy that would hurt the euro. But wouldn’t it behoove traders to wait to see those changes first? Of course it would!

I told you earlier in the week that I didn’t think the ECB would make any changes at this meeting, and I’m holding on to that opinion. Which just means that if traders sold euros going into the meeting thinking that things would change, they’ll just have to turn around and buy them back, so we could see a swing here today.

Of course there’s always the chance that ECB President, Mario Draghi, throws the euro under the bus again. I just think that the ECB has really upped the ante on Monetary Policy, and it would behoove them to sit back and see if all the medicine they’ve applied to the aggregate economy of the Eurozone helps.

They should take a page from the Reserve Bank of Australia (RBA) who, when everyone thought they would cut rates in December, decided to wait, and take a look at what their previous rate cuts had done, and they are glad they did that, because the signs of a rebalancing of the Australian economy are showing up more and more, and muted steady growth should be the call to order in Australia  going forward. I explain all that rebalancing stuff in the Currency of the Month piece that will print this Sunday, I believe.

The Bank of England (BOE) is also meeting while I write this morning. I don’t expect any changes here either. The BOE is really in a difficult place with all the debt they have, and slowing economy, and little inflation if any. And then there’s the BREXIT talk, and polls that continue to show the “leave the EU” vote ahead, of the “no don’t leave” vote. I would just simply steer clear of this area until after we see the color of the BREXT referendum that will come at the end of June.

The Bank of Canada (BOC) did just what I thought they would do yesterday, which was nothing! Well, technically that’s not correct, for they did do something. They just didn’t do anything with monetary policy, instead, choosing to revise their growth forecast for 2016! And the BOC chose to revise their growth forecast for 2016 upward! And the Canadian dollar/loonie got bought, but in the overnight markets the loonie is getting sold, along with every other currency, not the Aussie dollar (A$), which is the only currency with a gain vs. the U.S. dollar this morning.

Going a little deeper with the loonie here this morning. BOC Gov. Stephen Poloz, wasn’t kind to the loonie after the meeting, basically telling the markets not push their luck buying the loonie. In other words, he doesn’t want traders buying the loonie, and pushing the value higher. He doesn’t want to see any further appreciation of the loonie. Sounds like a challenge to me, and now we have to see if the traders acquiesce or take him on. Quick Quiz: what currency from a developed country has been the world’s best performer since the middle of January with a 10% gain? You guessed it I’m sure, it’s the loonie.

There is something that could get affected immediately though and that is the U.S. dollar. I’ve read more than one report recently that talks about how the renminbi gold fixing, is in essence backing the renminbi/yuan with gold. And now, according to several news stories I’ve read, but still not sure if they are to be trusted, this new renminbi/yuan that’s backed by gold, allegedly, is NOT going to be convertible into dollars. Okay… I don’t have any confirmation of this, but if it’s all on the up and up, it could spell real trouble for the dollar. Could be like the song from the Cornelius Brothers and Sister Rose. It’s too late, to turn back now.

Gold sure got whacked yesterday, as once again, gold’s attempt to remain above $1,250 didn’t have the power that the short paper trades did. Gold lost $13 ($13.30) yesterday, and is down another $2 this morning. In other news regarding gold… We finally know the date the Chinese renminbi gold fixing will start. April 19, just next week! 

I read yesterday that the gold fixing will begin with 18 member banks. Now, calm down, remember, I told you that this is not going to change anything with the way things get done in the West with the gold fixing, right out of the starters blocks, but eventually, this is going to be a real threat, to the gold fixing in the west (London and New York) as paper trades are not welcome here.

Well, all the glowing talk about Singapore had to be thrown in the closet and the door shut quickly, as the Monetary Authority of Singapore (MAS) surprised the markets, and me, by lowering the slope of the trading band that the Singapore dollar (S$) trades in to 0%. In English, that means that the MAS is not targeting any currency appreciation for the S$ going forward. This move by the MAS is akin to a rate cut folks. And the S$ is getting whacked, as it should, given this surprising move by the MAS.

The March Aussie Employment Report printed stronger than expected, which surprised me, pleasantly I might add! And the report is feeding the rally of the A$ this morning.  For those of your keeping score at home, the March jobs count was 26,100, vs. 17,000 expected, and the Unemployment Rate fell from 5.9 to 5.7%. Recall that I had thought that we might see a pull-back of the hefty jobs gains that Australia has been booking, but there was no pull-back, it’s full-on for Australian jobs. A strong result like this should go a long way toward keeping the RBA on the interest rate cut sideline. And that should be like manna from heaven for the A$.

So, the Fed’s Beige Book had some things in it that really got the dollar bugs all lathered up yesterday afternoon. Most Fed districts reported that economic growth was “moderate to modest”. Now that doesn’t sound very upbeat to me, so let’s look further into the Beige Book. Oh, there it is, this is what we’re looking for! The previous Beige Book had painted a picture of an economy with “flat prices” and no wage growth. But this report said that “overall, prices increased across the majority of districts, along with wages.” And that got the markets thinking that a Fed rate hike was going to get back on the table of discussion.

I say hogwash! These are probably the same Fed Governors that saw “green shoots” and the same ones that didn’t see a housing meltdown on the horizon. I wouldn’t back them in a bet you can be sure of that! I don’t mean to be harsh or anything like that, but come on, the track record is what it is. And the markets are to blame, they swallow this stuff, hook, line and sinker every time. Every time, I said, every time.

Smokey Bill Robinson says, “I’m just about at the end of my rope, but I can’t give up hope”. And that describes me to a “T”.  In more ways than one! But for this discussion, I’m talking about the markets and the Fed – when will the markets get tired of being disappointed?

So, the U.S. Data Cupboard yesterday, had the March Retail Sales for us to see, and see what we did. Ha! That reminds me of a saying we used to have as kids, when someone would say, “Let me see that”, we would respond, “No sea to it, all dry land”. HA! OK, can you tell I’m trying to paint this picture a little brighter than it actually was yesterday? I know, that’s not me, I usually do my best Aaron Neville and Tell it like it is. But the March Retail Sales data was bad. Really bad folks. March Retail Sales fell -0..3%, when it was expected to rise 0.1%. So, how can the Fed districts be seeing rising prices, when Retail Sales are negative? See, what I’m talking about with these Beige Book “opinions”?

In addition yesterday, March PPI (wholesale inflation) fell -0.1%, when it was expected to rise 0.2%. So, let me get this straight now. The Fed districts say they saw prices rising, but Retail Sales were negative, thus not putting any price pressures on things, and Wholesale prices dropped. Somebody please help me to understand how the Fed districts could see rising prices?

Today’s Data Cupboard has the stupid CPI for March and the usual Weekly Initial Jobless Claims, which really don’t mean anything any longer, since the BLS has completely taken control of “adjusting” the jobs reports each month.

Well, I talked a lot about gold above, so let’s talk about silver today.

So, did you all see that news that came across on Reuters yesterday that Deutsche Bank AG has agreed to settle U.S. litigation over it illegally conspired with the Bank of Nova Scotia, and HSBC Holdings Plc to fix silver prices at the expense of investors? Well, that’s according to a court filing!

Now, I have to stop here, and say to all those naysayers that don’t believe in price manipulation in Silver. Neener, neener, neener! Seriously though, this has got to be just the first step to tearing down the wall of price manipulation. Mr. Gorbachev tear down that wall!  If all three of these banks all agree to settle, and apparently they have, then I don’t see why they’d settle unless they are acknowledging that they fixed silver prices in their favor. Well, that’s just the first step folks. Oh, and for Bart Chilton the CFTC commissioner who repeatedly reported that there was nothing strange going on in silver pricing.

Well, when I saw this in the local St. Louis paper yesterday, my jaw dropped. It’s national news, right out of my hometown, St. Louis. and It’s not good news either. This has got to be a first for me, giving you a link to the St. Louis Post Dispatch, but here you go, the entire story is here, and here is the snippet:

ST. LOUIS . Weeks after signaling that a heavy debt load and weak coal demand could push it into bankruptcy, Peabody Energy surprised few when it filed for Chapter 11 protection here on Wednesday.

The fall of the world’s largest coal company is the starkest example of the plunge in the coal industry’s fortunes over the last few years. Yet with the grace period on a skipped interest payment ending this week and the failure of a big mine sale Peabody was counting on to raise cash, the news wasn’t unexpected.

‘All signs were pointing to it coming,’ said Kris Inton, an analyst at Chicago-based Morningstar.

As a hub for big coal, the St. Louis region has been at the center of several large coal bankruptcies in recent years. Peabody’s rival and the nation’s second-largest coal mining company, Creve Coeur-based Arch Coal, filed for bankruptcy protection in St. Louis in January. Peabody spinoff Patriot Coal’s first bankruptcy was heard here in 2012, and St. Louis-based Foresight Energy also warned of a bankruptcy risk last month.”

Chuck again. Peabody has been one of the more prominent corporate names in St. Louis, with its headquarters in the city of St. Louis. I think this is a sign folks, when Midwestern corporations find their debt load is too heavy of a burden, that things are about to go haywire all over.

That’s it for today. Have a tub Thumpin’ Thursday, today, while being good to yourself!

Regards,

Chuck Butler
for The Daily Pfennig

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