RBNZ Cuts, But Could It Be the Last One?

And now… today’s Pfennig for your thoughts…

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

Well, front and center this morning, the RBNZ did it. The RBNZ (Reserve Bank of New Zealand) went ahead and threw caution to the wind yesterday and acted as though there is no housing bubble in Auckland, and cut rates by 25 Basis Points bringing their Official Cash Rate (OCR) to 2.5%…  RBNZ Gov. Wheeler, was adamant about the slowing global economy and the effects of the current El Nino on the prospects of a turnaround.  So, I’ll give him that, but as I’ve said over and over again, this dance is gonna be a drag.

No wait! I’ve said over and over again, that there’s a point with interest rates in each individual country, where once you cut rates to that level, cutting them even more makes no difference.  And in New Zealand we could very well be reaching that point if we haven’t already. We’ll have to wait-n-see how the economy reacts, or doesn’t react. Then we’ll know!  Oh, and one further thing. Wheeler hinted, that this was it for rate cuts. Which explains why the New Zealand dollar/kiwi is on the rally tracks this morning…

The currencies are mixed again this morning some winners, some losers and some that can’t make up their mind which side of the ledger they want to be on.  The euro had a very nice day yesterday and throughout most of the night, with the single unit climbing above $1.10, only to be brought back down by a trio of economic reports from France failed to meet the expectations, and proved once again that when you have a large family like the Eurozone, there will be laggards, and there will be those that rise above the crowd. The problem for the euro, is that France is one of the larger economies of the Eurozone, so you can’t just wave it off like you would if say, Portugal saw a trio of economic reports not meet expectations.

But I thought it was quite interesting that traders were willing to drive the price of the euro through the $1.10 handle yesterday and last night. It was as if they were playing poker with the Fed, and said, we see your 25 Basis Points raise, and raise the pot with a stronger euro. But, as I said, the under expectations reports from France of Unemployment, inflation, and manufacturing, saw to it that the traders had a losing hand.

The Swiss National Bank (SNB) met this morning, and they surprised me by keeping rates unchanged. I really thought that they were primed and ready to take their negative rates where no negative rates had gone before.  I guess they thought that since European Central Bank (ECB) president, Mario Draghi, didn’t go all crazy with stimulus measures last week, that the SNB didn’t need to move the negative rates needle.

And what do the SNB get for keeping a lid on their negative rates?  A Swiss franc that’s weaker this morning. Shoot Rudy, if the SNB had realized that all they had to do to get the franc weaker was to no change monetary policy, they wouldn’t be in the mess they’re in right now! HA! The SNB is just like all the other Central Banks, folks. They are clueless as to what makes their economy sing. All their economic models are worthless these days, but yet, they continue to rely on them.  Remember what I said here, that the SNB is just like all the other Central Banks. That includes you know who…

The Aussie dollar (A$) is the best performer this morning, adding 3/4-cent to its value in the overnight and morning sessions. Remember yesterday when I told you that the Australian Employment report was due to print later in the day, and that the thoughts were that there would be some downward revisions to the strong Rocktober print of +58,000?  Well, there was no such thing! And the November Employment Report shocked the markets once again with another strong showing of +71,000!  These last two months of large jobs gains has brought the Unemployment Rate in Australia to 5.8% the lowest it has been since May 2014..

I’m sitting here smiling like the Cheshire Cat, thinking about the Reserve Bank of Australia (RBA) Gov. Stevens, and his message to the markets after the RBA’s last meeting, and that was to “chill out”  and to go enjoy the Christmas season, and then come back after the New Year, and we’ll see if there are adjustments that need to be made to monetary policy.  Those sure look like something out of the mouth of Yoda, now don’t they?  I give a gold star to RBA Gov. Stevens.

I told you yesterday that Bank of Canada (BOC) Gov. Poloz was going to speak and I feared that he would show his true colors and diss the loonie.  Well, something happened on the way to the podium, and Poloz had an epiphany. Instead of dissing the loonie, Poloz surprised his audience by talking about the Canadian economy, its resiliency in the face of lower commodity and oil prices, and then he said that the Canadian economy was “Quite Far” from needed extraordinary stimulus measures. WOW! Another gold star given out to a Central Banker this morning. And the loonie responded  favorably to this upbeat talk from Poloz.

A higher court has halted the impeachment process of Brazilian President Dilma Rousseff, saying that the court needed more time to review the documents and proof that something “impeachable” has been committed by Rousseff.  And the real doesn’t like that news, and is trading downward for the first time this week this morning.

Well, the Chinese renminbi continue to see depreciation after depreciation being subtracted from the renminbi’s value. I told all you dear readers that I expected the Chinese would continue this depreciation after the SDR announcement because they needed to offset the rate hike by the Fed. Well, you see how things work, right?  The markets start believing the stuff the Fed says about a rate hike, and they begin pricing the rate hike in.

So, China has to respond to that by pushing the renminbi down in value to offset that “pricing in of the rate hike”.  Nobody, waits for the actual event to take place any longer, it’s all about who will be first out the door.

The price of oil is still below $38, but has sort of stabilized and that has helped the Russian ruble gain back some of the ground it lost the past week as the price of oil slid down the slippery slope. The ruble is stronger again this morning marking two consecutive days of gains, which is always a good sign for a currency, that it has weathered the storm.  But in the long run, I continue to think that the ruble will remain range bound until the sanctions on them are removed.

Still not much data of significance in the U.S. Data Cupboard this morning.  Personal Net Worth, and the Monthly Budget Statement are the headliners. Tomorrow we get to see November Retail Sales, but until then it’ll be another day of wallowing for the dollar, with not props, support of funny reports.

And gold is basically flat this morning, although trading with a small gain as I write. I saw where the top precious metals forecaster, a guy named Barnabas Gan, who is an economist at Oversea-Chinese Banking Corp, has repeated his previous message from Rocktober, where he said that the price of gold will continue to drop throughout 2016.  He said that based on his beliefs that the U.S. economy is going to be very strong, and interest rates will have risen 1.5%  by the end of next year.

Well, I’m sorry, but I’ve got to shoot holes in that whole scenario. He must be drinking the Kool-Aid that the Fed is serving.  Oh, and the holes I would shoot into the scenario, I’ve already shot them, and don’t want to go down that road again this morning, and get my blood pressure all whacked out, I’ve got to go see a new doctor today!  HA!

I found this on Ed Steer’s great daily letter this morning, and it mentioned Grant Williams, and anytime I get the opportunity to read something by Grant Williams I jump at that chance! The link to the full article can be found here. This article is about how Grant Williams thinks that right now “nobody cares” about the price of gold. And here are the snippets:

But, Grant feels, the day is approaching when everyone will again care about the gold price. Should global equities markets collapse – seen as almost inevitable over time – despite all the Central Bank efforts to hold them up, or some of the World’s political flashpoints deteriorate seriously, gold will take back its place as a prime safe haven investment. Consider it to be like flood insurance he says. You take it out, but hope you’ll never have to draw on it, but you will still fork out for it year in, year out. Gold should be treated in an investment portfolio in the same manner.

Thus he sees the gold market as dangerously out of sync with reality and sees this as reversing in the near future. In a subsequent panel discussion he commented that he’d never seen gold so unloved by the market, making it a great time to buy. There is a growing likelihood of a sea change in sentiment, and that when it does start to pick up gold will move hugely and comfortably take out its previous highs despite anything Central Banks and their allies can do about holding it down.

Chuck again. Longtime readers know how much I look forward to the every two weeks that Grant Williams’ letter: Things That Make You Go Hmmm” (TTMYGH) show up in my email box. The Big Boss, Frank Trotter, sat on a panel with him last month. When he told me, I said, “you lucky dog!”

That’s it for today. I sure hope you can make this a Tub Thumpin’ Thursday!


Chuck Butler
for The Daily Reckoning

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