No Circus Today, Bummer!

And now… today’s Pfenning for your thoughts…

Good day, and a wonderful Wednesday to you!

Well, all the fun and games begins today with the Central Bank meetings, and all that stuff we went through on Monday.

Alrighty then. Front and center this morning, we had the Aussie CPI print overnight. Recall that I told you that it was important for this report to confirm what the Reserve Bank of Australia (RBA) said recently that they didn’t see the need for further rate cuts. Well, the CPI (consumer inflation) failed miserably to confirm what the RBA thought was the case, as it printed weaker than expected at 0,5% for the Quarter. 0.7% was expected, and on a year-on-year basis CPI in Australia is tracking 1.5%.

The RBA’s target is 2-3%, so inflation is well below the target, and for failing miserably at confirming the RBA’s message, the Aussie dollar (A$) is getting whacked with a Big Stick! Actually though, when I first read that CPI failed miserably, I thought the A$ would be looking much worse than it is today.

And to take this whole thing further… why on earth is this scenario even considered to be right? I remember the day when the Reserve Bank of New Zealand (RBNZ) Gov. Don Brash, was able to keep his job because he kept inflation below 2%!  Oh well things change, people change, and fundamentals change, I just think that someday, these traders taking shots at the A$, will rue the day they wished for higher inflation!

The other Big News overnight, comes from Sweden, where the Riksbank did indeed opt to expand their bond buying program but, and here’s something very interesting. They had this to say about interest rates. “An initial raise in the rate will be deferred by approximately six months compared with the previous assessment.”  And with that thought, the krona is on the rally tracks this morning. I can hear krona traders saying, “Hey, we’ve got 6 months before we revisit rate cuts, woohoo!”

I personally think that the currency traders as a whole, have lost their mojo, their swagger, and their minds! They’ve lost track of their teachings, what they learned about how to value a country’s currency, and have fallen into a trap that was set by the Japanese long ago, and perfected by the U.S. I believe these boys and girls have been trapped by the idea that what’s bad is good, and vice versa.. I wonder just how long these traders will remain trapped. It’s sad, to see this happen, but it’s happened, and now we have to adjust to their trading patterns. UGH! I’m not good with change, nor do I take to change easily.

Well, the circus is not coming to town this month.  The media circus that surrounds a Fed Meeting (FOMC) just isn’t going to make it today. There’s no press conference scheduled after the meeting, nor are there any thoughts that the Fed will announce anything today other than that they are keeping things unchanged and still watching the economic data for signs of growth and inflation. Stranger things have happened here in the past, but my spider sense which was tingling the other day, has since calmed down, so we need to move along here, for these are not the droids we’re looking for.

And later tonight, the Reserve Bank of New Zealand (RBNZ) will meet, and the economist and observers are split 50/50 on whether the RBNZ cuts rates at this meeting. Even if they choose to wait, I’m sure RBNZ Gov. Wheeler will not miss an opportunity to take a whack at kiwi strength, and his statement after the rate announcement will be the perfect opportunity. So, either way, I don’t like kiwi’s chances to get on the rally tracks tonight or tomorrow.

The euro is a bit stronger this morning, but seems to be in a range-bound pattern.  The European Central Bank (ECB) will get the word out on the street today, that more needs to be done, when 3 ECB members go out and spread the gospel according to Mario Draghi.

First up was Benoit Coeure an ECB executive board member who said that the ECB may need to take additional measures to help boost prices with inflation failing to rebound as fast as policy makers had expected.   So, that was the first one, I expect the other 2 ECB members to sing from the same song sheet, and keep a lid on any attempt by traders to push the euro higher.

For the most part, the currencies hold the upper hand vs. the dollar this morning, but there are a few that couldn’t make the rally train as it left the station, including the A$, sterling, krone, zloty, and, renminbi.  The word from China is that there seems to be more and more Chinese officials dropping hints that a more flexible currency exchange is the direction China is moving.

Last night it was Huang Yiping, a member of  China’s Monetary Policy Committee who had this to say. “In the long run, we need a more flexible exchange rate. We can’t go back to the old way of letting administrative authorities set the market exchange rate. Managing the exchange rate cannot continue.”  So, traders heard this, and said, well if that’s where this is all going, let’s get a head start and mark down the renminbi!

OK, I came across this story this morning on the Bloomberg, and it illustrates my belief that I explained above regarding currency traders losing their way and having things all backwards.

I’ll just print the title of the article to illustrate what I’m thinking.  “Sell India’s rupee when Global Going is Good, Buy it in Hard Times” The writer goes on to show that in September when things looked pretty bleak for the Emerging Markets, the rupee gained 1.5% and was the best performing Emerging Market currency, but in Rocktober, as things have settled down for the Emerging Markets, the rupee has slid.  What’s black is white, and what’s white is yellow, and so on. UGH!

I used to have a little white flag on a pole on my desk when I was at Mark Twain Bank, and when I was ready to give up a battle, I would raise the white flag. I’m not ready to raise it now, but I’ve reached for it more than a few times in the past couple of years. These changing trading patterns that aren’t based on fundamentals are driving me crazy folks. simply crazy, and when that happens, who knows. only the Shadow knows.

Well, gold is up $5 this morning to $1,172 and change, and silver is back above $16. I sure would like to see silver trade with a price that’s reflective of the demand, and the lack of silver out there. But’s that wishful thinking.

I read this morning that Chinese gold imports from Hong Kong soared to a 10-month high in September, thus indicating strongly I might add, that demand for physical gold in China remains strong!

The U.S. Data Cupboard had some data prints for us to view yesterday. And in keeping with the continuing trend of weak and soft U.S. Data, Durable Goods Orders fell -1.2%, revealing a second month of transportation and defense led drops, after gaining in June and July.

Capital Goods Orders also printed negative at -0.3%..  But that’s not all folks!  The Markit Services Index fell from 55.1 to 54.5, and it was expected to rise!  But the item that got my real attention was the “fluff” Consumer Confidence Index which reversed the big upside move it made the previous month. Do you think that those surveyed, said, “Hey! We didn’t tell you last month that we were confident, we said we weren’t confident”?  HA!

Today’s Data Cupboard doesn’t have much ahead of the FOMC meeting this afternoon. And like I said above, the media circus isn’t coming to town this time, so just move along. nothing happening here.

Before I head to the Big Finish today. I wanted to thank everyone for sending along a note regarding the FWIW piece yesterday. I know I hear you loud and clear that you want me to return to doing a FWIW piece each day, but like I told you before, I’m switching gears, and will do one here and there. today’s piece is just Chuck thinking out loud, it’s fun stuff!

That’s it for today. I hope you have a wonderful Wednesday!


Chuck Butler
for The Daily Reckoning

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