Gold Gets Back on the Rally Tracks

Good day, and a marvelous Monday to you!

Well, we’re starting the week with the dollar a little softer that is was for most of last week. Front and center this morning, Fed member John Williams was quoted on TV this morning saying that he’s good things going on in the economy and believes there will be 2-3 more rate hikes this year. 

I’m surprised the dollar bugs aren’t going bananas over those words from Williams.  But they aren’t, at least not right now. But the NY boys and girls haven’t arrived yet, so that might still come. And given the soft dollar this morning isn’t really showing a clear direction right now, so a change could come very easily.

Gold is up nearly $11 ($10.70), as I write. The shiny metal had  very difficult week last week, and words like those spoken by Williams this morning would have deep sixed the gold rally last week. But it’s a new week, folks!  The U.S. Data Cupboard is sprinkled with a couple of real economic reports this week: Industrial Production tomorrow, and Leading Indicators on Thursday.  Other than those, it’s a bunch of regional manufacturing indexes, and Housing numbers to fill in the gaps the rest of the week. And the stupid CPI prints tomorrow (I don’t care!)   So. the sentiment in the currencies and metals this week could hinge on what is spoken..

And to that we have Fed members Kashkari speaking today, John Williams and Robert Kaplan tomorrow, and William Dudley on Thursday. So no shortage of hot air this week. And as far as Williams words about what he sees in the economy. Don’t you wonder if he’s the same Fed member that saw “green shoots” a few years ago?  Keep telling us these things Fed members, and you know we’ll all go out and spend like there’s no tomorrow. NOT! We’ve been shanghaied before, but not again!

Here’s one little piece of data that I’m sure Williams hasn’t seen. In the past decade there’s been a 14% drop in Manufacturing jobs. That’s right 14% drop!  That’s according to the Bloomberg this morning! I read an article on Bloomberg and the writer of the article wrote that the director of currency strategy at Pioneer Investments believes that “given that this is an anti-globalization, anti-free trade strain that’s running through the American electorate, the strong dollar is going to be a potential victim. The markets will start to price in a risk premium for the U.S. dollar and for U.S. financial markets.”

Hmmm…  well that’s the first piece I’ve read that ties the election process to the dollar and the financial markets, which would be stocks and bonds. I’m sure there will be more, as this election process this year has the potential to be a lightning rod.

The price of oil spiked in since Friday morning to the $47 handle! That was quite a push higher in the price of oil, and the petrol currencies are all enjoying life in the spotlight today, led by the Russian ruble, which is the best performing petrol currency, with the Norwegian krone in a tight second place.

The national polls in the U.K. still show the BREXIT vote a toss-up (the vote is at the end of next month), but in a private poll that was run by the Global Traders Association, the majority of those polled wanted to leave the European Union (EU).  This was a wide majority too, like 85%… And the news of this private poll has pound sterling on the selling blocks today. 

I was talking to the editor (Brian Maher) of the Daily Reckoning on Friday, and I said at that time I didn’t think the U.K. would leave the EU. Much like I said last year that I didn’t think Greece would leave the euro. But this private poll has me questioning myself. I don’t do that often, so this is a real problem for me!

The Chinese renminbi was allowed to appreciate, albeit a very small amount, in the fixing overnight. Over the weekend China printed their latest (April) Industrial Production report, which printed at 6% year on year, with the consensus at 6.5%, so it did not meet expectations, but still a nice print given the slowness in the global economy. I also mentioned to the D.R. on Friday, that China is still attempting to generate a domestic demand economy, and this past weekend, China printed their April Retail Sales, which were up10.1%! Good show!

The Aussie dollar (A$) is stronger this morning for one of the first times since the Reserve Bank of Australia (RBA) cut rates in the first week of the month. It’s been so long since the RBA cut rates that tonight they will print their meeting minutes. But since there’s been a Monetary Policy Statement (MPS) since then, the minutes should be an afterthought, but there might still be a nugget in there for the markets, one never knows. But all-in-all, I just don’t how the minutes could ruin the A$’s positive tone today.

Last week we saw the Japanese yen fall back to trade with a 109 handle. But this morning, the yen has rallied back below the 109 figure. But the range is pretty narrow, I don’t think yen traders are committed to going either way with yen right now. The next Currency of the Month will be the Japanese yen. With the so-called Shanghai Accord, and Japanese leaders all screaming from the rooftops that they want yen weaker, it seemed to be a good time to talk about yen.

The U.S. Treasury 10-year yield is dropping again. On Friday, it closed at 1.70%, and overnight it has touched 1.68% coming back to 1.71% right now. Bond traders are sending us a message about the June Fed meeting folks. Are you receiving it?  The Bond Traders are telling us that there will be no rate hike in June. Can you believe that these bond yields are so low again? 

Well, I guess I can, given that I still believe that the U.S. economy is heading to Recessionville. And remember, these yields have been low for so long now that we have become comfortably numb with them. Hello? Is anybody in there? Just nod if you can hear me. Is there anyone at home? Yes, we’ve become comfortably numb with these low yields. What will happen when they aren’t low any longer? That day will come, but when? Ahhh grasshopper, that’s the question that has broken many a man who thought that the bond rally that has lasted for what seems to be forever now, was going to end tomorrow.

I used to show a slide picture during presentations, that was a guy at a school like desk, looking like something just hit his head, and “!!!!!” Over his head. And I would say that’s a picture of me, banging my head on the desktop because I called for the bond bubble to pop, and then the Fed announced that they would begin Quantitative Easing/bond buying that would last five years, with three rounds and more than $4 trillion in bonds bought by the Fed.

The G7 countries and their Finance Ministers will meet this week. And I hear that U.S. Treasury Sec. Lew, isn’t happy with China and Japan for what he believes is intentional weakening in recent weeks. I don’t think China or Japan is very much concerned with Jack Lew thinks. But I do think that the so-called Shanghai Accord has already lost its hold on what it set out to do, which was weaken the dollar, and allow currency appreciation in the renminbi, euro and even in the yen, which was unwanted by the Japanese. We’ve already seen some give back of these currencies to the dollar in the last week.

So, the question is this: should the Fed hike rates in June? What do you think? I don’t think so. Look, they had the opportunity to hike rates a few times a couple of years ago, and passed on that, and now that the economy is slip-sliding away once again, they now want to hike rates. Too little, too late, is what I would say. I was more than a little surprised last week when a well-known and here unnamed think tank essentially said – the US Fed should ignore all that noise in the market and decide on their own where the economy stands and take action. After all they probably know better.

That was the think tank talking not me. But I wish I had come up with that thought originally! And I do believe the think tank is being facetious!

Well, gold was up $9 on Friday, as it seems to have bounced from the low on Friday morning after getting whacked a couple of times last week. I told you above that gold was up nearly $11 this morning, so that’s $20 in the past two trading sessions! Of course the price manipulators could take that $20 out in a heartbeat should they feel compelled to do so!   

The Short contracts in silver and gold continue to be added to. The days of production to cover the short ounces contracts, has risen to 220 in silver and 115 in gold. That’s a shame that this is allowed to continue.  If production in these metals shut down tomorrow, what would happen to these short contracts? There obviously wouldn’t be any new metals to deliver in the short contract, so they would have to be closed out, and the crazy scene that would cause is beyond my imagination.

The U.S. Data Cupboard on Friday, has the April Retail Sales. I had told you ahead of the print that the BHI indicated it would be a positive number  and it was. And quite strong too! Printing at 1.3%, and less Gas and Autos up 0.6%. So, gas sales at gas stations and the sales of new cars were very strong in April. That’s a big difference from the March negative -0.3% print in Retail Sales. Last week I told you about the HUGE jump in Consumer Credit (read: debt) in March, and apparently that all didn’t get booked with the retailers until April.

Well, Retail Sales may have been a blowout in April, but the Retailers are flat on their backs folks.  This was on ZeroHedge this weekend. It’s brief, but to the point, and I think plays out with other Retailers that we’ll be hearing about:

After many prominent blow ups in the retail and consumer space in the past week, moments ago Nordstrom was the latest casualty of the US consumer’s unwillingness to spend money when the company reported Q1 EPS of $0.26, missing consensus estimates of $0.46 by nearly half, and about a third of what the company earned last year despite relatively flat revenues of $3.25 billion which also missed expectations of $3.29 billion. Comparable sales dropped -1.7% on estimates of an unchanged print.

The one good thing about JWN is that the company did not blame a stronger dollar (because it wasn’t in Q1), nor weather, but instead admitted the problem: lower sales. To wit:

‘Our first quarter results were impacted by lower than expected sales. In response we have made further adjustments to our inventory and expense plans,’ said Blake Nordstrom, co-president, Nordstrom, Inc. ‘As the pace of change in retail continues to accelerate, we remain committed to serving customers by taking steps that will continue to meet their expectations while driving profitable growth.’

The bottom line, of course, is that just like all the other retailers, Nordstrom is merely suffering from the same reason all the other retailers are getting crushed in Q1 –  a U.S. consumer who simply refuses to spend. Since that same consumer accounts for two thirds of US GDP, the Federal Reserve has a major problem on its hands.

Chuck again. Yes, this is the fate of the brick and mortar retailers.

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

Regards,

Chuck Butler
for The Daily Pfennig

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