This is What Happens When Doves Talk
And now… today’s Pfennig for your thoughts…
Good day, and a wonderful Wednesday to you!
Ty Keough sent me a note yesterday asking me what Janet Yellen meant when she said something about “Greater Gradualism” in her speech yesterday? I laughed out loud, and then sent him a response saying something about “Fedspeak” and central bank parlance for “we don’t know what’s going on” I mean when you mention your uncertainty about inflation 10 times in a speech, something has to be going awry, don’t you think? Well, that’s what she did yesterday, she mentioned the Fed’s uncertainty with inflation 10 times! Do you think that was the message she wanted to get across? HA!
So, yours is no disgrace Janet Yellen, central banks have lost the power to direct an economy, it’s not your fault, so don’t be so downtrodden. I mean didn’t you learn from Big Ben Bernanke, that even in the face of a housing meltdown that you put on a happy face and tell the world that everything is fine?
Ok, I could go on but won’t. But if you’re ever in the neighborhood, I invite you to stop by the Butler patio. Once again the Fed members aren’t singing from the same song sheet, as illustrated by the Yellen speech yesterday, which by far, more dovish than anything I’ve heard from the other Fed members recently. Now, don’t get me wrong here. I’m not upset with Yellen, she did what she thought she had to do! And by doing so, she has removed the conn from the dollar. That’s right, you talk dovish, and your currency will suffer the consequences.
And the timing couldn’t be better for the currencies that enjoy a positive yield differential to the dollar. You see, we’re coming up on month-end/quarter-end, where normally you see a lot of hedging unwound, and if my thoughts are correct, most of that hedging was long dollars. So, we could have the dovish speech by Janet Yellen, and unwinding of long dollar hedges hitting about the same time. Be careful making any outright calls on whether the strong dollar trend has ended in the next 2 days, because it could very well look that way, but be 1/2- window dressing.
The New Zealand dollar/kiwi is pushing the currency envelope across the table this morning, and now trades with a 69-cent handle! WOW! And their central bank, the Reserve Bank of New Zealand (RBNZ), cut rates earlier this month, proving once again that the pain can be forgotten, if given enough time. The Aussie dollar is also rallying this morning, but it appears to be taking a back seat to kiwi. That doesn’t happen very often, but when it does it’s quite interesting to me.
The price of oil is steady Eddie with a $38 handle this morning, so it remains in its range that I described for you a day or two ago. And since the Fed looks like they will keep their interest rate powder dry when they meet in April, the petrol currencies are looking pretty perky this morning, led by the Russian ruble. The Canadian dollar/loonie, has enjoyed a very strong month of March, I just say!
Late in February, we were talking with some friends from Canada, out on the deck, and they mentioned how badly the loonie had fallen in the last couple of years. So, I took it upon myself to let them know that I thought the loonie was oversold, and could be ready to move higher. The loonie was trading around 71-cents then. Today, the loonie has a 76-cent handle! A better than 5-cent move in March. I remember when if you saw a 5-cent move in a currency in a 1/2-year that would be considered a huge move! But that was then, and this is now, and the volumes reach amazing levels every day in these currencies, causing them to take wild swings that in the days of yore, (HA!) didn’t exist.
All the currencies, including the Chinese renminbi, are on the rally tracks vs. the dollar today. More on the renminbi in a minute, but first, one true currency that isn’t on the rally tracks this morning is gold. The shiny metal did react positively to the Yellen speech yesterday with a more than $20 move higher, with more than 400,000 contracts in gold traded on the day! But gold is giving back $5 of that move higher yesterday, in the early morning trading.. Having two-day rallies just doesn’t seem to be in gold’s DNA these days.
Platinum had a HUGE jump higher yesterday and is still moving stronger this morning. Yesterday morning Platinum was trading at $949 when I did the currency roundup. This morning platinum is trading around $972. I can’t find anything that tells me why Platinum jumped so much yesterday, and that’s typical for these metals that aren’t gold.
So, back to the Chinese renminbi, which saw a larger than the average bear, appreciation at the fixing last night. I’m not surprised by anything the Chinese do with the currency these days. The days of pretty much knowing which way the wind will blow with the Chinese renminbi fixings, are over! But, isn’t it just like the Chinese to do a larger appreciation of the renminbi, right when the markets and every other currency commenter, thought that the Chinese were getting ready to devalue the currency?
Consumer Confidence in the Eurozone dropped this month to 103 from 103.9. But that didn’t bother the euro which is still the offset currency to the dollar. The euro has gained back the 1.13 handle it held a couple of weeks ago, the last time the Fed talked dovish after their FOMC meeting where they left rates unchanged. That rally faded quickly for the euro, as will this one once we get through month-end. I just don’t see the euro breaking out of its current trading range, not now, at least.
I think the Indian rupee is the proxy today for what happens when the Fed talks dovish. A foreign currency gets to rally, even in the face of things happening in said currency’s country that would normally have the currency on the selling blocks. The rupee is rallying, even in the face of Reserve Bank of India (RBI) Gov. Jaitley, who is keeping his grip on the interest rate cut handle.
So, maybe you see what I’m talking about here with the short-term rallies that they are based on the Fed’s dovishness, which will probably fade in a day or two, so don’t get all lathered up over these moves just yet. They have to show me that they have staying power, and not fade like they did two weeks ago.
The U.S. Data Cupboard yesterday saw Consumer Confidence surge higher in March from 92.2 to 96.2, but I told you that would probably happen, right? Like I said, it’s not rocket science, folks. And the S&P/Case-Shiller Home Price Index for January also printed, and showed a very small gain in home prices, so nothing here really to see. Today’s cupboard has the pre-Jobs Jamboree labor picture report from ADP for March jobs created. The ADP forecast is for 195,000 print. And that’s it for today for data. The ADP report will start our day, and we’ll go from there.
Speaking of data… A dear, and longtime reader, Bob, sent me a note yesterday from a Gary Halbert, a financial newsletter writer, who highlighted the CNBC report last Friday by CNBC’s Steve Liesman, that sheds new light on the inaccuracy of the Commerce Department’s GDP reports. CNBC looked at each quarterly GDP report going back to 1990 and found an average error rate of 1.3 percentage points. So an initial report of 2% growth later could be revised up to 3.3% or down to 0.7% on average, and that, about 30% of the time, the government gets the direction of growth wrong. That is, GDP initially shown to be higher than the previous quarter could in fact be lower, and vice versa.
The report was very fair given that they showed both sides of the coin saying the Gov’t could be wrong going either way. I found that to be interesting, because in my opinion, it always seems to me to be overstating GDP not understating it!
Still, a great letter by Gary Halbert. and I thank Bob for sending that to me.
I saw this headline on Ed Steer’s letter this morning and thought, that it was going to be a good story, given that I’ve talked about the Indian plan to pay interest on gold deposits. This article is funny to me. Here’s the link to the whole story: or here’s the snippet:
There is a conflict between two finance ministers, and it seems the ‘official’ one is not winning this war.
The country’s finance minister announced a scheme to monetize the gold holdings of India’s families, but the finance minister back at home, the housewife, is having none of it. This came through clearly at a recent meeting between economic affairs secretary Shaktikanta Das and representatives from the Reserve Bank of India, temple trusts and other bodies, to discuss ways to make the scheme more attractive.
‘I am not even able to convince my wife to part with her jewelry, which she hardly uses,’ one official reportedly said at the meeting, raising laughter. ‘It’s easy to convince North Block but very difficult to convince finance minister at home to participate in this scheme.’
Chuck again. Well, if the deposit program had less strings attached, maybe it could be viewed as an option, but when you’re not even promised the return of the exact gold you deposited, well, that pretty much seals the deal for most Indian gold holders. They want no part of this plan.
And with that, I’ll get out of your hair for today, and send you on your way to a wonderful Wednesday. Be good to yourself!
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