Backing Away From The Treasury Auction Window!

Chuck Butler’s: A Pfennig For Your Thoughts

 January 18, 2018  

  * Bank of Canada hikes rates!

* U.S. prints strong data… 

Good Day… And a Tub Thumpin’ Thursday to you! I’m still waiting for the infusion center down here to call me to come in. I can’t imagine what the holdup is, but when you deal with insurance companies, they sure know how to elongate things. I’m just saying…  It was a good night, for my teams, as both the Mizzou Tigers, and the SLU Billikens won their respective basketball games. I actually was able to watch the Mizzou game VS Tennessee, as the beauty of Cable TV shown brightly! Steely Dan greets me this morning with their song from the album of the same name: Aja

Instead of Turnaround Tuesday, today we have a Turnaround Thursday! Yesterday saw the dollar continue to gain throughout the day, with the euro falling through the 1.22 handle, and Gold losing over $11 on the day. But all that bad stuff has turned around in the overnight sessions, and the euro is back above 1.22 and Gold has gained $3 in the early morning trading.  It’s a Turnaround Tub Thumpin’ Thursday…   

The Bank of Canada (BOC), did indeed go ahead and hike rates yesterday, which happened to be their 3rd rate hike since last summer! Yesterday, I told you how the markets had soured on the thought of a rate hike, and thought that the BOC would still talk like a hawk. But I was holding to my guns, and said the BOC would hike rates, and they did, moving their internal rate to 1.25%.  

This is a step in the right direction to throw some cold water on the housing bubbles in Toronto and Vancouver, but there’s a lot more work to be done there, and I hope the BOC is up to it!  The Canadian dollar/ loonie didn’t rally on the rate hike, as it had already been priced in weeks ago, back when the markets did believe that the BOC would hike rates, and before their confidence in the BOC waned.  

So, the BOC is moving in the right direction now, and I’ll stop dissing BOC Gov. Poloz, as long as he sticks to the rate hike cycle now in place… Remember last year when I kept talking about the Tent Revival for Global Growth? I was out in front of this idea that the economies of the Globe were healing and Global Growth was going to return.  And now it’s coming to fruition right before my eye!  

OK, the dollar pulled itself off the canvas yesterday, first to do a little rope-a-dope, and then come out of that defensive position, swinging and landing some heavy blows on the currencies and metals. This all took place after the morning U.S. Data prints, that included a very strong Industrial Production print for December.  And when I went to bed last night, the dollar appeared to have wrestled the conn back from the currencies.  But when I turned on the currency screen this morning, the overnight markets had turned things around, and the dollar is back to doing the rope-a-dope again.

Shoot Rudy, even the price of Oil, you know Black Gold, Texas Tea, slipped after enjoying a nice uninterrupted run higher in price. Black Gold slipped below the $64 handle, and looked like it was going to slip even further through the handle, but the turnaround Tub Thumpin’ Thursday stopped the slide and Texas Tea is recovering lost ground this morning. 

I was very disappointed in “the boys in the band” yesterday…  Just when you think they’ve slipped under the rocks they live under, they pop out and cause havoc in the price of Gold… Yesterday, Gold had climbed to $1,344, and then you should see the price graph with a line straight down. Even a novice graph watcher would look at that move and say, “what the hell just happened?” And they would soon figure out that it was an engineered take down by the price manipulators. 

I get so, frustrated, depressed, and worn out knowing that the “boys in the band” did what the did yesterday…  Gold is attempting to gain back some of the lost ground that happened in one fell swoop yesterday. But the shiny metal has its work cut out for it once again. This isn’t the first engineered take down of the price of Gold, and each time it’s happened in the past, the shiny metal has been able to eventually, move even higher than it was when the takedown occurred. 

Have you been tracking the 10-year Treasury’s yield advance lately? the 10-year hit 2.60% yesterday, and quite frankly I don’t see what’s holding it back!  We have the U.S. Fed stepping away from the auction window, and China contemplating doing the same… The U.S. continues to increase its debt, and that debt has to be financed with the sale of Treasuries, and the two of the biggest buyers are nowhere to be found… 

There’s only one place for Treasury yields to go…  UP!  I’ve got a very telling article for you in the FWIW section today that highlights this whole scenario of countries backing away from buying Treasuries… Be sure to stick around for that! HA!   

The U.S. Data Cupboard goes back to producing non-market moving data today. But boy did they turn the markets attention toward the data prints yesterday… I already told you that Industrial Production was a very strong print for December, but in addition to that strong print for IP, was an equally strong print in Capacity Utilization (CAPU).   This data, CAPU, is important in my eye, because it’s one of the few forward looking pieces of data, and it gives you an indication of how corporations are feeling about the economy… 

I do believe that this euphoria over the U.S. economy is going to be short-lived, as the Fed has been hiking rates and says they will continue to do so, which is going to squash any hopes of an economic recovery here in the U.S.  Now, I say that with the thought that interest rates here in the U.S. are still very low, historically speaking that is, and they’ve got some ground to cover before they become a burden on the economy…   

To recap… The dollar had its way with the currencies and metals yesterday, but things have turned around in the overnight markets. The euro fell below 1.22 yesterday, but has climbed back over the figure in the overnight markets. Gold got taken down by “the boys in the band” yesterday, and is attempting to recover some lost ground, with a mini-rally this morning. The Bank of Canada hike rates, as Chuck said they would, yesterday.  

For What It’s Worth… I pulled this from Ed Steer’s letter this morning, and he got it from and like I said above, it’s about countries reducing their Treasury holdings at a time when, well we need for them to increase their holdings! This article can be found here:  

Or, here’s your snippet: “In the aftermath of Bloomberg’s report from last week that China may slow down or reverse its Treasury purchases should the U.S. trigger trade war with Beijing, pundits were closely watching today’s TIC report from the Treasury to see what China did November. And according to the just released Treasury International Capital data data for the month of November, Chinese Treasury holdings dropped from $1,189.2BN in October to $1,176.6BN in December, the lowest since July’s $1,166BN.

China wasn’t the only seller in November: the total value of foreign investors Treasury coupon holdings fell $18.825 billion in November on top of a $22.264 billion decline in October, but foreign holdings of corporate debt surged $28.699 billion in November, following a $10.447 increase in October. There was also a net increase in the value of GSE/MBS holdings of $12.267 billion in November after the $9.971 billion increase in October. These totals do not include adjustments for non-marketable Treasuries, ABS repayments and stock swaps.

Some other notable foreign holders of U.S. paper:
* Japan holds $1.08t, a decrease of $9.9b from last month
* Belgium holds $115.3b of U.S. Treasuries, a decrease of $0.7b from prior month
* Russia holds $105.7b of U.S. Treasuries, an increase of $0.7b from prior month
* Cayman Islands hold $269.4b, a decrease of $0.5b from last month
* Saudi Arabia holds $149.0b, an increase of $3.8b from last month 

Chuck again… I found it interesting that Saudi Arabia saw an increase in their holding. A few months ago, they were one of the Biggest sellers of Treasuries. You don’t suppose that the U.S. and Saudis kissed and made up do you?   

Currencies today 1/18/18… American Style: A$ .7985, kiwi .7293, C$ .8037, euro 1.2228, sterling 1.3860, Swiss $1.0414, … European Style: rand 12.26, krone 7.86, SEK 8.0370, forint 252.19, zloty 3.4070, koruna 20.7582, RUB 56.63, yen 111.26, sing 1.3218, HKD 7.8178, INR 63.75, China 6.4328, peso 18.69, BRL 3.2289, Dollar Index 90.67, Oil $63.94, 10-year 2.60%, Silver $17.09, Platinum $1,001.90, Palladium $1,106.82, and Gold… $1,329.90

That’s it for today… That cold front that has dipped so far south, has even touched down here in S. Florida. The weather people were reminding parents to bundle their kids up for their wait at the bus stop this morning, as it was going to be cold (according to them) at 40 degrees! HA! Today is our winter, that’ll be it…  We said goodbye to our friends yesterday, after their short-stay. It was fun while it lasted, their stay that is! Our Blues are on the road and play in Ottawa tonight. Well, I needed to hear the song that’s taking us to the finish line when I first woke up this morning, because I really didn’t want to answer the bell, but did, and so now I get to hear the late, great Alvin Lee, play his guitar as his band Ten Year After, play their song: Choo, Choo Mama…  I hope you’re able to have a Tub Thumpin’ Thursday, and remember to always, Be Good To Yourself! 

Chuck Butler