Mester To The Rescue!

Good day, and a happy Friday to one and all!

Well, what appeared to be a rout of the dollar yesterday morning, faded to the dollar clawing back its lost ground by the end of the day. We had the usual Fed member, Mester, out talking about how the economy can handle a rate rise.

Remember when I told you that we would still be hearing various Fed members talking about rate hike, and whenever they would do that the dollar would benefit? Well, that’s exactly what happened yesterday afternoon. And unfortunately, for the currencies that had worked so diligently toward mounting a rally, the dollar’s strength carried through overnight and into the morning session.

I would caution against thinking the currency rally is over, given the fact that today’s U.S. Data Cupboard has Industrial Production and Capacity Utilization, which haven’t exactly been reaching for the stars in recent monthly prints, and I do not expect them to do so today either!  So, more weak data could turn the tables on the dollar today. We’ll have to wait-n-see.

In New Zealand overnight, it was a case of three consecutive nights of good data, as 3rd QTR CPI (consumer inflation) rose 0.4%. I know rising inflation isn’t supposed to be considered as “good”, but in this day of deflation all around, a little inflation goes a long way toward keeping the respective Central Bank from cutting interest rates.

There had been lots of calls for a Reserve Bank of New Zealand (RBNZ) rate cut in December. But I would have to think that these calls have been tempered a bit with this rise in CPI.  But, that didn’t stop the trades from marking down kiwi by 1/2-cent.

While we’re in the region… Earlier this week, I told you about the announcement that China would issue a government bond denominated in renminbi in London.  Well, stop the presses. The plans have changed. Apparently, China has decided to scrap the bond issuance and issue their version of T-Bills, called PBOC Bills, instead.

In the end it still has the same effect in that it is being done to facilitate the internationalization of the renminbi, which will lead to the currency to being included in the SDR basket next year.

So why the change from bonds to bills?  I had a good explanation of this, that I’ll probably butcher, but I’ll try it anyway…

The People’s Congress  approved aggregate government debt quota on an annual basis and bond issuance accordingly early in the year. That would mean the bond issuance for this year is already a done deal, and any changes to that would require time. And the Chinese don’t want to wait, so they’ll just change the issuance to PBOC Bills.

I was reading an article on the Bloomberg that was quite interesting regarding China. The new Chinese Plenum will begin soon, and it is expected that the Plenum will designate below 7% growth for China’s economy for the next 5 years.

Hmmm… Here’s where I find a problem with this article: They said that 2/3 of the 16 economists they surveyed thought this about China. They don’t tell us if these economists are Chinese or have strong ties to the Chinese operations. If they called me and asked me, I would tell them: “I don’t know, I don’t live there”.

And longtime readers know all too well that this has been my stance on Chinese reporting, that most of it has come from economists that don’t live there, and don’t know squat about what’s going on, just what they read.  Now, I have made some opinions about what the Chinese are up to, and so far, I’ve been bang on, but I’ve never said that “I know” what’s going on in China. Shoot Rudy, I’m having a tough time trying to figure out what’s happening in the economy of the country in which I live!

So. All of the lofty figures the currencies held yesterday morning have been watered down. And the dollar has the conn once again, and like I said above, I think it was all Mester’s words that turned the tables from a currency rally to a dollar rally.

The euro was looking pretty handsome yesterday morning, but as I told you yesterday morning, the ECB member deep sixed the euro with his talk about “clearly not meeting targets” which insinuated that more stimulus would be needed.

Well, the euro gets no break today, as not one, not two, or three, but four ECB members will be out to talk, and opposed to how our Fed members do things, I would bet a dollar to a Krispy Kreme that all four will be talking from the same song sheet.  So, batten down the hatches, for now with the euro, as it won’t get any love from the ECB, nor from dollar strength.

Singapore printed a good data report last night, so let’s go see what’s going on there.  The Non-Oil Domestic Exports or NODX rose 0.3% in September, following an awful -8.4% print in August. Apparently exports of electronics to Europe picked up in September. So, that’s good news for both Singapore and the Eurozone.

Unfortunately for the Sing dollar (S$), it has gotten caught up in the dollar rally, and has given back some of its gains from yesterday.

Gold is getting sold and is down $6 this morning. Yesterday, I was all prepared to talk about the rise in the price of silver to above the $16 handle. But that was wiped out in the afternoon trading. I am inundated with articles about the silver shortage going on, and I’ll just say that I first wrote about that a year ago!

Of course, I’m sure I got slapped around pretty good for going out on the limb with that call, but here we are, and the newswires are filled with stories of the silver shortage.

The U.S. Data Cupboard has the aforementioned Industrial Production (IP) and Capacity Utilization (CAPU) to print this morning, and as I said above, I expect these to be disappointing. Also printing today will be the U. of Michigan Sentiment report for the first two weeks of Rocktober, and finally, the once important, but no so much any longer, TIC Flows (net foreign security purchases).

So, all in all, not a whole lot, so all the focus will be on the IP and CAPU prints.

Before I head to the Big Finish, I read this piece on the Bloomberg, and though it to be very important for you to read too:

At stake for President Xi Jinping and Premier Li Keqiang is whether China can shift from a middle-income to high-income nation, a feat Nobel laureate Michael Spence says has been realized by only five economies — Japan, South Korea, Taiwan, Hong Kong and Singapore — while maintaining relatively high growth rates.

Crafting of the five-year plan coincides with heightened anxiety over China’s economic outlook following a stock market slump and surprise yuan devaluation in August that roiled global markets.

Chuck again. I think that China will have no problem achieving this goal, even if their annual GPD drops below 7%… At 6.5% growth rates, China will still be outperforming its fellow large economy countries of the U.S. and Eurozone.

That’s it for today. Have a fantastico Friday!


Chuck Butler
for The Daily Reckoning

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