FOMC Meeting Minutes Surprise The Markets

And now… today’s Pfennig for your thoughts…

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

Well, just when I thought, and the markets pretty much thought, that a Fed rate hike in June had a slim chance of taking place, and Slim had left town, along came the Fed Speakers, followed by their April FOMC Meeting Minutes. Who knew the minutes would prove to be hawkish?

After the April Fed meeting Chair Janet Yellen sounded like someone that had lost their puppy, as she was deemed to be very dovish, and almost apologetic for hiking rates to begin with. But the meeting minutes proved that this stature taken by Yellen after the meeting and again a week later when she spoke in public, was just a way to throw the markets off the scent of another rate hike.

The dollar bugs are dancing in the street and crushing the currencies and metals this morning folks, and it’s all about the meeting minutes so, let’s look at what they said and then I’ll dissect it. Among a lot of other things that were dovish, this comment caught my attention:

Most participants judged that if incoming data were consistent with the economic growth picking up in the second quarter and the labor market conditions continuing to strengthen, and inflation making progress toward the Committee’s 2% objective, it likely would be appropriate for the Committee to increase the target range for the federal funds rate in June.

I underlined the comment about the labor market conditions continuing to strengthen because it’s a load of crock! I pointed out to you last week that the Labor Market Conditions Index (LMCI) had fallen for the fourth consecutive month! But the Fed members seem to be on a mission from God, and are hell bent and whiskey bound to hike rates in June. Why you ask? Well, September would be too close to the election, heaven forbid they hike rates and be accused of being political. And I guess the fed members haven’t checked their emails lately to see that both HUGE Retailers, Target and Home Depot announced that consumption is faltering heading into the second QTR.

They even made notes in the minutes about how some participants were concerned that market participants may not have properly assessed the likelihood of an increase in the target range at the June Meeting. They then made a note about the importance of communicating clearly this to the markets. And now you know why Williams and Lockhart were so hawkish in their speeches on Tuesday. I thought it pretty strange that these two members who normally lean to the doves side of the isle, were so hawkish. It was all in the plan. Can you see Janet Yellen wringing her hands and saying, I’ll get you markets, for not taking us seriously. HA!

I guess this is a good place to talk about my new whipping boy, Central Banks. On Tuesday I gave you a hint of what I was going to focus on in the June Review & Focus regarding Central Banks. Then yesterday I ran across some thoughts that just played so well with my thought that Central Banks have lost control, that they do desperately want and need (according to them).  If they haven’t lost control then explain these things:

Growth, which was high, is now low. And there’s no excuse by the Krugman and Summers of the economist world as to why that is.

Inflation, which was bad, and everywhere, is now good and nowhere. What on earth are these Central Banks doing here? Haven’t they ever heard of the saying, “let sleeping dogs (inflation) lie”?

Helicopter Money Drops, which were mad, are now sane?

And getting back to inflation… Central Banks used to fight and prevent inflation, now try to cause it.

Tell me that you think they’re all on the right track and that this will all work out just fine, and I’ll send the paper work over to sell you a piece of swamp land I have.

I’ve seen days like this, but haven’t seen one in a while. A day where the dollar kicks tail and takes names later. And again, I have to think that so-called Shanghai Accord has now been deep sixed, thrown in the circular bin, and is a forgotten piece of paper. The euro has dropped to 1.1205, and 1.1080 is the 200-day moving avg. It could very well slip through there today, given the dollar’s momentum. Yen is within’ spittin’ distance of 110, and the Aussie dollar (A$) continues to take on water, even though their latest employment report was solid.

The lone wolf of the major currencies that is rallying vs. the dollar this morning is pound sterling. It’s pretty interesting that just yesterday I told you that the pound could see a rally when the BREXIT referendum was put to bed, and Britain remained in the European Union/EU. And traders beat the referendum to the punch! The latest polls show the “don’t leave” vote widening its lead vs. the “leave” vote. So, this is a case of buy the rumor, and probably sell the fact in June.

And gold is getting whacked again this morning, and is down $19 as I write. I wish I could wrap a tourniquet around the shiny metal but the paper shorts are winning, and trying to stop them right now would be akin to catching a falling knife! Going down a different path with gold, I was reading the latest Rude Awakening yesterday, and they supplied a link to a video.

In the video a fund manager was being interviewed and it’s not important who he was, but what he was saying about HSBC (Hong Kong Shanghai Banking Corp). He was concerned with the depository of the physical gold that backs ETF’s, and that they had booked a huge loss recently.  He’s concerned about the health of the depository that holds the gold for ETF’s, and therefore he’s concerned with ETF’s as a whole, preferring, but of course, to buy and own physical gold. And I with him 100% I’ve always maintained that if you want to own gold, you need to own physical gold (pooled gold is physical gold, you just don’t have to hold it).

The price of oil slipped back below $48 in the past 24 hours, but still looks like it wants to try its hand at hitting the $50 mark.. With all this dollar strength in the markets today, it will be a tough row to hoe for the price of oil.

Just about 10 days ago, the Dollar Index was trading with a 93 handle and the thought was that if it traded below 94  for a few days, that the next move down in the dollar was about to happen. Well, this morning the Dollar Index is 95.25. WOW! Talk about a HUGE upward move! And it pretty much tells you how badly the euro has done in the last couple of days. 

I was sitting at my desk doing some reading about the dollar index yesterday, and it got me thinking. Why does the dollar have an index?  The euro doesn’t have one. The Yen doesn’t have one, and neither does pound sterling or the renminbi. What on earth were the originators of this Dollar Index thinking of when they decided that there should be something to value the dollar? And the antiquated dollar index is out of touch with what’s really going on in the world today, one has to wonder why it’s even still quoted, charted, and talked about. But it is. UGH! And here I am talking about it! What a dolt I am some days!

There’s really nothing else to talk about with regards to the currencies and metals this morning, they are all (sans pound sterling) getting whacked by a resurgent dollar that now appears to be getting pushed upward due to thoughts of a June rare hike. Nothing more to see here, move along.

For What It’s Worth. Well, I don’t know what kind of value this FWIW will be today, but I thought when I read the title on the screen that I just had to read more. And the title is “The Commodity That No One Knows About But Everybody Wants To Buy.”  That would pique your imagination too, right? OK, well it can be found on Bloomberg, here, and here’s your snippet:

“The world’s mines and steel plants got so devalued during the commodity slump that some were just given away by owners struggling to cut losses or debt. But there’s at least one metal that’s been attracting a lot of attention.

Niobium — named for a Greek goddess who became a symbol of the tragic mourning mother — is used to produce stronger, lighter steel for industrial pipes and aircraft parts. It is mined in only three places on Earth, and the price of every kilogram is seven times higher than copper.

China Molybdenum Co. outmaneuvered at least 15 companies last month to purchase Anglo American Plc’s niobium and phosphate unit in Brazil, agreeing to pay $1.5 billion, or 50 percent more than the valuation by some analysts. The buying frenzy that included Vale SA, Apollo Global Management LLC and X2 Resources showcased the growing appeal of a market that may be worth $4 billion for a soft, silvery metal many experts don’t know much about.

Niobium is hard to find and hard to value. More than 80 percent of global supply comes from one company — Cia. Brasileira de Metalurgia & Mineracao in Brazil. Metal Bulletin Ltd., which publishes prices for metals as obscure as bismuth and germanium, says there’s not enough liquidity to report one for niobium.

Chuck again. Pretty interesting if you ask me! I’ve been around commodities going back to my days as the assistant Operations Manager at a commodities and securities brokerage in Des Moines Iowa, called R.G. Dickinson. And I had never heard of this commodity. So, see you can teach an old dog a new trick!

That’s it for today. I hope you have a tub thumpin’ Thursday and be good to yourself!


Chuck Butler
for The Daily Pfennig

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