Yen is Best Performing Overnight... What's Going on Here?

And now… today’s Pfennig for your thoughts…

Good day, and a Tom terrific Tuesday to you!

I wish that government leaders, Central Bankers, and anyone else making decisions on our behalf were equipped with Pinocchio’s nose. Now that would be great, wouldn’t it? But, that’s never going to happen, so we can just imagine them when they speak to us, and their collective noses growing right before our eyes! HA!

So, here we are, the 23rd of February, the 54th day of the year, and we’ve been up, down, and all around with regards to the markets. The commodities, led by oil, have bumped higher, and then fallen back. Sort of like a colonial times military. Stocks have teetered and nearly fell from the cliff before Fed member James Bullard pulled them back to safety, and since then, stocks haven’t looked back. The Currencies have been all over the board. The euro rises then falls, same with most of the other currencies, with the except of the Japanese yen, which for some reason unbeknownst by logical thinking people like me, continues to rally. So-called safe haven buying of yen is one thing, but to see the currency gain a full figure in overnight trading when there were no signs of data anywhere, or Japanese officials talking, is just crazy in my opinion.

All I can think of is that this is great for yen holders that had thought their opportunity to get out of this currency had ridden off into the sunset, but now they get a second chance, is good for yen holders.

The price of oil bumped higher by about $2 overnight. But not one of the petrol currencies are taking advantage of this move higher. As I said last week, I think the petrol currencies traders have seen enough of these small bumps higher by oil, when everyone gets on board the “this time oil goes to $50 train” only to see that train derail shortly after leaving the station. and they just “aren’t going to be fooled again”.  And that’s a shame, because these currencies sure got whacked every time the price of oil dropped $2.

The Peoples Bank of China (PBOC) surprised the markets last night with a large mark down of the renminbi in the fixing. It has been thought, in the markets, that China would basically keep the renminbi steady Eddie, ahead of the G20 meeting that will take place this weekend in Shanghai.  So, let’s look at the scoreboard today. The renminbi was depreciated by a large margin, but the price of oil bumped higher, so those two wash each other out, so what’s it going to be for the stocks today? Well, it appears that they’ll be just fine, that is unless Fed member Fisher throws another cat among the pigeons, like Bullard did last week.

The general feeling in the markets right now, is that the “fear factor” was overdone, and that the risk assets like stocks are going to be fine now. With that kind of a backdrop, the currencies from Australia and New Zealand are back on traders’ minds to buy. In fact, the Aussie dollar (A$) is within a cent of reaching its 200-Day Moving Avg (DMA).  Traders are getting comfortable with the idea that the Reserve Bank of Australia (RBA) is on hold with rate cuts for now, and that’s good for the A$! I think that the A$ traders had better tread water carefully here, as you don’t want to get the RBA upset with a strong A$ again, and figure the only way to combat that is to cut rates.  Now that wouldn’t be a good thing!

The euro is weaker again this morning, after rising up to 1.1050 overnight, it has sold off some in the European session after a weak IFO print.  The February Business Climate, Assessment and Expectations as measured by the think tank IFO, all printed weaker than the previous month’s print. Fourth QTR GDP final print for Germany revealed that a 0.3% gain remained from the preliminary prints. Remember, Germany is the Eurozone’s largest economy. So, how Germany goes, is important to the overall Eurozone economy.

And also remember that the euro is the offset currency to the dollar.  So, dollar strength or weakness will show up in the euro’s value immediately. Which means that while the Eurozone might struggle, economy-wise, the euro might still rise in value if the dollar is getting sold. and vice versa..

I saw that the Russian ruble was weaker this morning, and decided to check out the stories surrounding the ruble as they are usually pretty interesting. And this is what I saw as the top story: “ruble weakens on the drop of oil”. So, I quickly went back to my screen that prices the commodities to confirm that I saw the price of WTI oil above $32, and in fact it was now above $33. So, what drop? I don’t see it, do you?

The damage that a potential BREXIT caused last week, is still being worked through, as traders are still not convinced staying in the European Union (EU) is good for the U.K. But, Hey! Goldman Sachs issued a report saying that they back PM Cameron’s decision to remain in the EU, so that should be just about all you need to know about that! It’s a good idea, period. no questions asked, because LOLA has spoken!

Speaking of “having spoken”, Bank of England (BOE) Gov. Carney was speaking this morning, and he said something that caught my attention; “Carney says BOE has no plans to introduce negative rates”.  Hmmm… remember July 2014, and the pound sterling was rallying and would continue to rally for at least six months. What was all that about? That was a positive reaction to Carney’s comments are hiking interest rates.  But that never happened, did it? So, I wonder where you can put this comment about no negative rates for the BOE? Hmmm. Inquiring Minds need to know!

Well, gold sure has seen some major swings this past week in its price, eh? Up $22 on Thursday only to be shot down on Monday. Sounds like a Frank Sinatra song. Riding high in April, shot down in May, I know I’m going to change that tune, when I’m back on top in June! And yes, I do have a few Frank Sinatra songs on my iPod!

Getting back to gold… this morning, when I first turned on the screens, the price of gold was on the rise by $11 but has since given back a couple of bucks as I write.

I read on Ed Steer’s letter this morning that The Central Bank of Russia (CBR) Added 7.4 Million Troy Ounces/or 230 metric tonnes of physical gold last year to their gold reserves, which now total more than 1400 metric tonnes. It’s been a steady rise of gold holdings for the CBR as they started out in 2006 (10 years ago) with less than 500 metric tonnes of physical gold.

I also wanted to point out something that doesn’t really get me excited to hear, but in a way it’s good news for gold. Gold ETF holdings have increased by 14% this year to its highest level in a year. I’m no fan of paper trades in gold, but at least investors are looking at gold again, after the shiny metal was so hated for a few years.

The U.S. Data Cupboard had the preliminary February print of the Markit PMI (manufacturing index) for us yesterday, and while the main focus with manufacturing should remain with the ISM print, this Markit print does give us some indication of what to expect from the ISM.  And the print was not very good! The Markit PMI for February declined to 51.0 from 52.4 (that’s a huge drop for this index in one month!) and brought the index to the lowest level since 2012. And in 2012, it was on the way up!

One of the components of the data is the employment component, and here it showed that employment in February is slumping. Slowing. Taking a breather, whatever you want to call it, it’s not good!

Today’s U.S. Data Cupboard will yield the S&P/CaseShiller House price index for December. I know, I know, that data is so stale, but I guess it takes them a couple of months to run the numbers through the abacus! We’ll also see the Consumer Confidence Index for February, and Existing Home Sales for January.  So, there’s not a lot there to move markets, unless Consumer Confidence gets a bee in its bonnet!

I saw this, and I think my heart skipped a beat, and no I’m not having a flashback to the first time I ever saw my wife, 43 years ago. No, this kind of heart skipping is because it almost stopped! I’m exaggerating here folks, if there’s one thing about me that I’ll never have medical problems with is my heart! So, let’s get back to the report I saw that shocked me. You can find this on Zerohedge.com by clicking here, and here’s the snippet, which is quite long today.

In the last two months, NYSE Short Interest has risen 4.5%, back over 18 billion shares near the historical record highs of July 2008 (and up 7 of the last 9 months).

There are two very different perspectives on could take when looking at this data.

Either a central bank intervenes, or a massive forced buy-in event occurs, and unleashes the mother of all short squeezes, sending the S&P500 to new all-time highs, or

Just as the record short interest in July 2008 correctly predicted the biggest financial crisis in history and all those shorts covered at a huge profit, so another historic market collapse is just around the corner.

Chuck again. Well what’s it gonna be boy? What’s behind door #1 or door #2? I guess we’ll have to wait-n-see, but I think it was very important to bring this to your attention, because we all know what happened last time, right?

Ok, time to go. I hope you have a Tom terrific Tuesday, and be good to yourself!

Regards,

Chuck Butler
for The Daily Pfennig

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