It's Data Week

And now… today’s Pfennig for your thoughts…

Good day, and a marvelous Monday to you!

The currencies and metals are taking a break this morning, and probably for most of this week, until we get to Friday, which will bring us April Fool’s day, and a Jobs Jamboree. Now that’s funny! Those two go together like two peas in a pod! I still can’t stop giggling about the fact that the Jobs Jamboree, which I don’t care about any more, and April Fool’s Day will coincide this year.

Like I said above the currencies and metals are taking a break today, with little movement whatsoever in either asset class. Last week brought us a lot of Fed speak about hike rates in April, after passing on a rate hike in March, and the talk didn’t end on Friday, as on Saturday, St. Louis Fed President, James Bullard, told an audience that the Fed could hike rates in April or June. All this rate hike talk has the dollar back in the driver’s seat, which is where it sits this morning. A lot of currencies this morning have tiny gains, but in reality, they’re flat with a bias to drop into negative territory given the rate hike talk.

So, what’s changed that the Fed members, who just a couple of weeks ago, sounded like they lost their puppy, as they described why they left rates unchanged, are now sounding like they have had a complete recovery from whatever it was that was ailing them two weeks ago? It sure wasn’t the disappointing Retail Sales report, nor was it the negative Durable Goods and Capital Goods Orders, or was it the negative Factory Orders report. So, come on tell us, tell us true, what has changed the Fed’s minds because it sure hasn’t been the economic data.

Well, maybe they got a hold of a preliminary report on PCE which will print today. Recall, that the PCE (Personal Consumption Expenditure) is the preferred method of tracking inflation by the Fed, as even the Fed can recognize a load of dookie when they see it (CPI). For most of the last year, PCE remained subdued around 1.3% (the Fed wasn’t 2% inflation to hike rates), but last month PCE finally broke higher to 1.7% year on year (yoy) and this month we could see it break higher still to 1.8%, according to the economists surveyed. But it would still be below 2%, right? So, thinking that the Fed got a hold of  the PCE data before everyone else, is reaching for straws.

The Fed Atlanta, didn’t help things by revising their forecast for the 1st QTR 2016. And that’s one of “their own”, doing the dirty work on data. Yes, it was reported last Thursday that the Fed Atlanta revised downward their forecast for first QTR GDP from 1.9% to 1.4%. Now, that’s what I call a “revision”! So, I’ll keep searching for an answer to the question: “What happened that changed the Fed’s minds from two weeks ago?”

The U.S. Data Cupboard also has the Personal Income and Spending data from February for us to see today, in addition to the PCE. If the spending data disappoints we could very well see those calls for a rate hike in April fade again.

It’s all about the U.S, this week folks. I do believe that Indian PM Modi will present his budget for the next year, this week, but that takes a back seat to the Jobs Jamboree in the markets collective minds. The Chinese renminbi saw a downward move in the fixing last night, but not as large as the moves last week. The talk going around is that the Chinese economy is beginning to show signs of stabilization. And maybe that’s the answer to our question above. In fact, I’m going to go out on a limb, right here, right now, and say this talk about China stabilizing IS the reason the Fed members are more upbeat.

All I would say to that is that they (the Fed members) need to be careful, for there have been a few false dawns on the Chinese economy  in the past few years. Memo to Fed members. Please be sure that the what you’re seeing from China has staying power, before hiking rates.

And speaking of China. All I am saying. is give peace a chance. You know, that song could go a long way in the world today with all the geopolitical tensions, but that’s not what I’m using it for today. Instead, I’m borrowing it from a research paper I read over the Holy weekend. In this case, I’m talking about the Currency Wars.

The writer of the research paper thought that the most recent moves by the Bank of Japan (BOJ) and the European Central Bank (ECB) had kept their respective currencies from weakening, as they targeted other things like credit, and BOJ just cut rates into negative territory instead of adding to Q/E (bond buying). In my opinion, it was like: “currency wars-lite”. So, if that’s what it takes to get this Currency War on track to ending. I’m all for it!

The price of oil is steady Eddie this morning just a shade below $40. Oil’s price sure has played its part as a yo-yo, doing the Lindy-Loop, and this is a bit unnerving to me, because it just doesn’t have a clear direction carved out. So, I guess patience here is important.

Gold is flat this morning, after a very ugly week of trading last week. The boys and girls that play with paper trades sure made life bad for gold holders last week, and really increased their short paper trades during the week. I’ve talked about this chart that Ed Steer prints in his letter from time to time before, but what it does it gives you the number of days of production it would take to cover the short positions of commodities including the precious metals.

Silver leads the pack with the most short contracts that would take 180 days of production to cover the short positions. Gold’s number is much lower at 85, but still, how does someone get away with going short on a metal like silver that will take 180 days of production to cover the short?

And on top of that the U.S. Mint just keeps putting out the hit records on silver, as each week, as reported by Ed Steer, the number of Silver Eagle 1-oz. coins that get sold go up by 1 million. That’s right 1 million ounces of physical silver out the door each week! And yet, silver can’t find a bid that would drive the price higher.

So, all I can say is to keep the pressure on the short paper holders with more physical metals buying. It’s the only thing I see that could end these short paper trades.

U.S. stocks sure made a comeback in March didn’t they? At the end of February it appeared that the stock market bubble had finally found the pin in the room, but then March came in like a lamb for stocks, and is going to go out like a lion, that is unless we have a complete reversal this week.

The only reason I mention this is to point out just useful the PPT (price protection team) can be.  And yes, I’m being facetious.  But isn’t if un to be facetious at times, besides I’m still thinking of ways I can have fun with the April Fool’s Day/Jobs Jamboree Friday this week!

I recently put the finishing touches on the April Review & Focus, and in it I talked about how it just doesn’t seem to work out, in my opinion, that the Fed’s Birth/Death Model kept adding jobs to their monthly surveys last year, when it was reported that more businesses closed (deaths) than opened (births) in 2015. But that just leads to this article that came to me over the Holy Weekend from MarketWatch, where you can read it all here, or here is the snippet:

Corporate profits sank 3.2% in 2015 to mark the first decline since the Great Recession, adding another weight on a slow-growing U.S. economy.

American companies have been squeezed by falling exports, cheaper imports and continued caution on the part of savings-minded consumers. Firms have also incurred higher labor costs.

Adjusted pretax profits sank 7.8% in the fourth quarter, the Commerce Department said Friday. Profit figures are adjusted for depreciation and the value of inventories.

Adjusted profits fell 3.2% for all of 2015. By contrast they rose 1.7% in 2014, 1.9% in 2013 and 9.1% in 2012.

The drop in annual profits last year is the first since 2008, when the U.S. was in the middle of the worst downturn since the 1930s. Energy companies have been hit particularly hard by a slump in oil prices while manufacturers have been battered by a stronger dollar that makes it harder to sell goods overseas.

Chuck again. And the Fed raised rates in 2015? And think they are going to do two more this year (down from their initial call for four more rate hikes this year)? And that’s all I’m going to say about all that!

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

Regards,

Chuck Butler
for The Daily Pfennig

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