China Changes Its Pricing Regime…

Chuck Butler’s: A Pfennig For Your Thoughts 

January 16, 2018

* Currencies go on a rampage VS the dollar!

* The price of Oil continues to steadily rise…  

Good Day… And a Tom Terrific Tuesday to you! And welcome back from the 3-day Holiday weekend, that is if you were able to enjoy it. I know that there are some that don’t get to celebrate 3-day Holiday weekends, and that’s just how it is…  I’ve been down the past two days, with a stomach problem that is just plain awful. I’m not eating just to help save myself from problems and even then I still have problems! UGH!  Oh well, hopefully it gets out of my system today in time for our good friends, Gary and Dianne, who are coming for a short visit. The O’ Jays greet me this morning with their song: Love Train…   

The currencies sure have taken off for flight since last week, and without the U.S. and the PPT (plunge protection team) around to save the dollar, the currencies kept taking liberties with the dollar. The euro is trading in the 1.22 handle, and the Aussie dollar (A$) is knocking on the door to 80-cents! As I look at the currency screen I don’t see one currency with that hasn’t gained VS the dollar in the past few days.  So, it appeared at first,  that the overseas markets weren’t afraid of the Big Bad Wolf (U.S. traders) and kept the pressure on the dollar all night long. I should know, because here I am in the middle of the night, checking currency prices! UGH!

But… Sooner or later love is gonna get ya. No Wait! Sooner or later some profit taking was bound to come along, and in the European session, that’s were we found it.  At first glance last night the euro was 1.2280, and now it’s trading around 1.2225…  Still with a 1.22 handle, but not as lofty as it was entering the overnight sessions. 

Gold isn’t sitting this dance out either! The shiny metal has moved, albeit slowly, but moved up against the dollar in the past couple trading sessions, and is trading above $1,330 this morning. What on earth is causing all this dollar weakness, I hear you asking? Well, I’ve laid this all out before, but let me go through it again for any new readers to class…

You see, tax cuts, lead to unknowns. And traders don’t like “unknowns”… The BIG unknown here with the tax cuts is just how much it will help the U.S. economy… Some believe that it’s the medicine that will cure the economy’s inability to grow 3% on a an annual basis. And some, like me, believe that it’s too much show and not enough go! So, until the proof of a stronger economy is in the pudding, I think we’ll continue to see the dollar in the woodshed on a more frequent basis… Notice I didn’t say, daily basis?

Well, a trend may be your friend, but a trend is not a ONE-WAY street, there’s always volatility in the trend, so please, when the volatility shows its ugly head, don’t panic and think the trend is over…

Currency trends are long sweeping moves, as witnessed by the last two trends… The weak dollar trend that went from 2002 to 2011, and the strong dollar trend that went from 2011 to 2017…

So, did you hear that Germany’s Bundesbank announced that they were going to begin accumulating Chinese renminbi as part of their currency reserves? That was the BIG new yesterday, but really shouldn’t be a surprise, as the markets led us on to believe it was… Remember in 2016 when the IMF added renminbi to their reserve currencies that make up Special Drawing Rights (SDR’s) I told you then that Central Banks around the world that owned SDR’s, would have to buy renminbi per the IMF’s allocation ratio, but that they didn’t have to do it right then and there? Well, this is the Bundesbank doing their part.

Speaking of China… Last week, the Peoples Bank of China (PBOC) announced that they had changed the regime that was used to price the renminbi on a daily basis.  The banks that help in the “fixing” of the renminbi were told to “adjust their use of the counter-cyclical factor in such a way that it didn’t have any impact on the mechanism.  OK, Ok, let me explain what that means… China has taken back some of the control of the fixing…   period.   But what about China moving to an eventual float of the currency?   

Ahhh, grasshopper, that’s still in the plans.. As I see it, and I could be wrong, the Chinese want to get all their ducks in a row with the renminbi, and having control of it will be the answer. Once everything is calmed down, and the renminbi is moving along without outside interference, the PBOC will spring a surprise on the markets with an announcement of a dirty float!  

All currencies now a days are traded with a dirty float, which means that they are valued by the markets, but… the Central Bank can buy or sell the currency to direct it in the direction it wants.  That’s a dirty float. 

The price of Oil has climbed over the $64 handle since we last talked on Friday, and I just read a blurb that said that Hedge Fund managers were increasing their bets for a higher priced Oil. Hmmm… I certainly don’t like those guys getting their hands in the cookie jar, so hopefully their “interest” is not strong at this time!  

With the price of Oil steadily moving higher, and the euro trading with a bid these days, the Norwegian krone is looking strong again, as it finally shed the 8 handle. The rest of the Petrol Currencies aren’t looking shabby either… The Russian ruble has moved toward 53, the Canadian loonie is above 80-cents, and the Brazilian real is stronger. Shoot Rudy, even the Mexican peso moved below 19 for the first time in a month of Sundays! 

And let’s not look past the pound sterling that is trading with a 1.36 handle this morning!  The Big Dog euro has left the porch! Sort of like, “Elvis has left the building”…  Speaking of Elvis, on Sunday it was the 44th anniversary of his world-wide TV special from Hawaii… He was, “Elvis” that night… I’ll always remember watching it with my mom… 

Ok, back to work…  The U.S. Data Cupboard today just has the Empire Index, which is a pulse of the manufacturing in the NY region, and is not a market mover. Tomorrow’s Data Cupboard has two of my fave economic prints. Industrial Production and Capacity Utilization will print for December, and that should get things rolling! 

To recap… The dollar has taken a ride on the slippery slope and only some profit taking in the overnight session last night has given the dollar bugs something to cheer about. The Dollar Index is trading with a 90 handle, which should tell you just how far the dollar has fallen in the past couple of trading sessions. Gold has moved higher, and the price of Oil is steadily moving upward. China changed the way they price the renminbi last week, and Chuck thinks it just a precursor to a dirty float.   

For What It’s Worth… At first glance I didn’t think much of this article, but then it began to get to me, and say, “Chuck, this is just another example of how the Gov’t’s of the world manipulate the markets” So, it’s about how 9 Canadian banks are being accused of manipulating interest rates… And it can be found here:    

Or, here’s your snippet: “A cluster of big banks has been named in a new lawsuit alleging manipulation of a key benchmark lending rate in Canada, opening up a new front in a global scandal that has led to billions of dollars in fines and penalties.

The plaintiff, the Fire and Police Pension Association of Colorado, is accusing nine banks of colluding over a period of about seven years in the manipulation of the Canadian Dealer Offered Rate (CDOR), in order to boost profits for their derivatives trading businesses.

CDOR, a benchmark created by the Canadian Bankers’ Association, is supposed to reflect the cost of borrowing Canadian dollars in North America, according to the lawsuit, which was filed last Friday in the southern district of New York.

Instead, the suit claims, the banks conspired to “suppress” CDOR by making artificially low submissions that did not reflect the actual rates at which they were lending.

On “hundreds” of days during the period in question, the suit adds, the banks’ submissions were identical, suggesting a pattern of collusion through electronic message platforms, phones, and e-mails.” 

Chuck again… I’ll say it again here… With all the scandals of manipulation that have been exposed in recent years, how is it so difficult to grasp the idea that Gold is being manipulated?   Think about that for a minute and it will sink in…    

Currencies today 1/16/18… American Style: A$ .7950, kiwi .7277, C$ .8045, euro 1.2235, sterling 1.3760, Swiss $1.0372, … European Style: rand 12.25, krone 7.8715, SEK 8.0288, forint 252.29, zloty 3.4111, koruna 20.8527, RUB 56.43, yen 110.70, sing 1.3230, HKD 7.8232, INR 64.02, China 6.4369, peso 18.75, BRL 3.2045, Dollar Index 90.65, Oil $64.07, 10-year 2.54%, Silver $17.15, Platinum $992.99, Palladium $1,119.76, and Gold… $1,336.60 

That’s it for today… I had a mathematical error last week… I was thinking at the time that is was still 2017, and said that son Andrew was 35, when he’s actually 36… UGH! I don’t like it when I make errors with math! Well, how’s your NFL team doing in the playoffs? The Jacksonville Jaguars are still in the hunt, but they have to play New England next, and I know I’m going to tick off quite a few people with this thought, but here goes any way… The Jags will have to play two teams, the Patriots and the referees… I’m just saying…  And with that I had better get this out the door, before I say anything else about the Patriots…  Triumph takes us to the finish line today with their song: Fight The Good Fight…  Please attempt to make this a Tom Terrific Tuesday and Be Good To Yourself!  

Chuck Butler