Fed’s Fischer Lathers Up The Rate Hike Campers!

And now… Today’s Penning for your thoughts…

I turned on the currency screens this morning and was very disappointed in currency traders. They have taken the Fed Member Fischer’s talk at the Jackson Hole boondoggle and swallowed it, hook, line and sinker. That means the dollar has the conn again. According to the currency & bond traders, the rate hike is back on the table in a strong manner!

The price of oil is $6 higher than it was last Monday morning. But you and I both know that we’ve seen these bumps higher in the price of oil, only to be left at the trains station feeling lonely and hurt. Will this bump higher in the past week, end up the same, or is this the start of the recovery of the price of oil?

Shoot Rudy, if I knew the answer to that, I would certainly blow this popsicle stand and head to Fiji!

The bump in the price of oil, sure hasn’t helped the Russian ruble. It’s down big again this morning and I read on the Bloomberg this morning that the ruble has now posted 4 consecutive months of losses versus the dollar. I would have to say that with the huge interest rate differentials that the ruble enjoys versus most currencies, that if the price of oil can continue to recover, that eventually, I would think that the oil price recovery would pull the ruble out of this nasty funk it has been traded in for 4 months now. But that’s a BIG IF, folks…

Another “R” currency, the Indian rupee is going to post their worst month, performance-wise, in two years. Basically, traders here feel as though the Reserve Bank of India (RBI) Governor Rajan will follow China’s rate cut this month with one of his own in the coming weeks. It will look as obvious as a man with a hatchet in his forehead that the rupee and the dollar are headed in opposite directions should the Fed hike rates in the coming weeks. I’ll remind everyone right here that I’m still not of the opinion that that the Fed will hike rates this morning, and if they do, it will be a small one just to save face with the markets. Will all this rupee weakness be reversed if the Fed doesn’t hike rates? One would think so, but traders are fickle, remember that!

The euro is up a few shekels this morning, which is good, because that increase in value brought the single unit back above 1.12. A week ago, when it appeared that the U.S. stock market was about to collapse, the euro traded to 1.1750. It has been a tumultuous week for the euro, but in the end, when the dust settles, the euro will be subjected to what the Fed does with interest rates in the coming weeks.

The IMM Futures Positions weekly report showed that euro short-positions were reduced by large margin and in fact the short positions in euros have been reduced to a 13-month low. That’s a good sign for the euro, folks. Now, if the euro long positions would increase!

The European Central Bank (ECB) meets this week on Thursday. We’ll see some flash CPI (consumer inflation) reports starting tonight from the Eurozone countries. There are no expectations for the ECB to do anything at this meeting on Thursday, so let’s just move along now, and go to the next item to talk about, for there’s nothing to see here. Come on, move along, move along. Come on people keep up, pick up the pace!

The U.S. dollar long positions were reduced the previous week to a 7-week low. The IMM Futures Positions cut off for the report was last Tuesday, so it does include the 3 major days of volatility, from the previous Friday, then Monday and Tuesday last week.  This report will be interesting to look at this week, as it will include the Jackson Hole boondoggle, and the renewed talk of a rate hike in September by the Fed.

Longtime readers know that I’ve always called the Aussie dollar (A$) the proxy for Global Growth. I read a piece this weekend that talked about the A$ being the canary in the coal mine for China. I thought that was an interesting way to talk about it.  Proxy, or canary, the A$ is getting sold this morning, and is nearly down 1/2-cent. The A$’s kissin’ cousin across the Tasman, the New Zealand dollar/kiwi is following the A$ down as kiwi is too down 1/2-cent this morning.

If the A$ is the canary, it’s not doing too well, right now. Oh, and the Reserve Bank of Australia (RBA) meets tonight — I almost forgot about that — because I don’t see the RBA moving rates at this meeting, and whatever they have to say afterward, might move the A$ one-way or the other, depending on what they say. But for the most part this meeting will be a non-event. At least I hope so!

Speaking of China, not that long ago in the whole scheme of time, I would write about what China was doing, and I would be about the only guy on the planet doing so. You could search and search and not find anyone else writing about China. But that was then, and this is now, and now we have more China stories and articles than you could shake a stick at! Now I couldn’t read them all if I wanted to! And I don’t want to! Because most of these guys that think they know what’s going on in China don’t know Jack! But they sure act like they do! So, you have to be careful what you read, and if you have any questions about something you read and it doesn’t play well in the sandbox with what I say, ask me, and I’ll give you my opinion.

The renminbi appreciated nicely overnight. It’s been a real roller-coaster ride for the renminbi in the past week and a half, with August probably being the most volatile month in the renminbi since the peg to the dollar was dropped in July 2005. August PMI’s are due to print tonight in China. Remember, the PMI’s are short for Manufacturing Indexes. These will be the ones from the government. You may recall me telling you that the HSBC PMI’s in China has shown a weakening in the index number.

I read a piece on the Bloomberg this morning, and the writer sounded as if he were reading my mind on Japan and PM Abe’s 3 arrows. Remember, Abe was going to introduce his 3-arrows, and just like that, Japan would have inflation, interest rates would rise, and the country would be back on the upward swing they’ve been waiting over 2-decades to enjoy!

Well, in baseball it’s one, two, three strikes you’re out.  And with Japan, and Abe, it’s one arrow, two arrows, three arrows and you’re out!  Because there’s still no inflation in Japan, there’s still no recovering economy, and there’s still no upward swing!  The Japanese yen saw a nice rally last week with all the volatility, as for some unknown reason, currency traders still think that yen is a “safe haven” currency. But now that the dust has settled on all that volatility (for now) , yen is heading downward again, where it should reside all the time!

The U.S. Data Cupboard on Friday, had some data prints that were interesting. Two of my faves, Personal Income and Spending, showed that Personal Spending for July was flat to June with both printing at +0.3%. The consensus for July was +-.4%, so Personal Spending from this data wasn’t anything to speak of. Personal Income was up +0.4%.

The interesting prints though were Personal Consumption, which is a different way of looking at consumer inflation. It is the preferred data print of the Fed. It was not very strong at only a + 0.1% increase. There’s just no consumer inflation in these reports folks… how could the Fed take the blindfolded leap to a rate hike with no consumer inflation in the reports they look at?

And finally the U of Michigan Sentiment survey for August dropped from 92.9 to 91.9.

Today’s Data Cupboard doesn’t contain any earth-shattering data, so the markets are on their own today.

Gold is flat this morning to down a bit. After gaining a few bucks on Friday after all the gyrations of the NY Traders arriving at their desks, which is something that can add to the excitement of the day with gold, but the boys and girls on the Gold trading desks must have been tired for their arrival was a non-event on Friday. I  basically wish it would be a non-event every day.

Speaking of the trading, this coming weekend will be a 3-day Holiday Weekend here in the U.S. with our Labor Day Holiday. That means trading on Friday will be subject to potential wild swings, as the trading desks in NY will be thin as everyone heads to the Hamptons for the last official holiday of the summer.


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

When I saw this headline on Ed Steer’s letter from Saturday, you know I just had to check it out. The title of the article? Here it is: The Investor Revolt Arrives: This Hasn’t Happened since 2008. Here’s what Ed had to say:

“There’s little question that the collapse of the financial universe in 2008 dealt a dramatic blow to retail’s confidence in US capital markets. Taxpayers were forced to foot the bill for a Wall Street bailout just as 45% of their 401ks was being vaporized.

To the extent that the Fed-driven, six-year rally restored some semblance of trust between retail investors and Wall Street, it was wiped away for good on Monday when, in a harrowing day of flash-crashing mayhem, the perils of broken, manipulated markets were laid bare for all to see and to add insult to injury, the ETF pricing model blew up causing some funds to trade far below NAV.

Given that, and given how predisposed household investors are to mistrust Wall Street in the post-crisis, post-Flash Boys world, retail outflows during uncertain times (like those that began last month when China’s stock market collapse began to make national news) shouldn’t come as a surprise, but as Credit Suisse notes, something happened in July and August that hasn’t happened since Q4 of 2008: retail investors pulled money from both stocks and bond funds. In other words, mom and pop were selling everything.

Chuck again…  WOW!  I’m at a crossroads personally, with regards to stocks… Part of me says that the Fed won’t hike rates and that will extend the stock rally, and part of me says Get the Hell out of Dodge!

That’s it for today. Have a Marvelous Monday!


Chuck Butler
for The Daily Reckoning

The Daily Reckoning