Currencies & Metals Get Ambushed Again Overnight!

August 17, 2022

* RBNZ hikes their OCR to 3%

* Russia to build a competitor to the LBMA… 

Good day… And a Wonderful Wednesday to you! Temps in the 70’s in the middle of August? That’s what we had last night, as neighbor friends, Duane, Mike, and Paul, all joined me outside to watch the Cardinals beat the Rockies 5-4. The game was closer than it needed to be, but for one bad inning by our starter. And I’m sorry if I offend this man, but if I were a major league batter and a pitcher named “packy” came in the game to face me, I would be fearless! I’m just saying… I’ve been thinking lately, that I need to go on an extended vacation, one where the currencies and metal could rally to their little hearts’ desire… But, I decided against that idea of an extended vacation… We’ll just have to suffer through the trials and tribulations of the dollar together… Paul McCartney greets me this morning with his song: Every Night..

Well, the dollar buying ended yesterday, and I suspect the PPT decided that they had done enough… I’m serious here about this… The dollar gets sold, once again, just like last week before the PPT entered the markets and propped up the dollar. The BBDXY lost 4 index points yesterday, and closed the day at 1,262.80… When will the Gov’t allow the dollar to trade without interference? In past trends whether they be strong dollar or weak dollar trends, the dollar floated freely dependent on fundamentals… These days, there are no trends to speak of, because every time the dollar begins to falter, and look like it’s read to do a Thelma and Louise, the PPT steps in and throws the dollar a life saver… (Cherry I hope, that’s my favorite flavor)

As I mentioned, on Monday, the Reserve Bank of New Zealand (RBNZ) met yesterday, and hiked their Official Cash Rate (OCE) 50 Basis Points to 3.00%… That still a long ways from equaling the inflation rate in New Zealand, but giving fundamentals a nod, kiwi rallied yesterday, while the Aussie dollar (A$) fell…I’m sure that kiwi would have sold off along with the A$, had it not been for the rate hike… And in the overnight markets kiwi did just that, get sold off, and lose all of its gains from the rate hike… UGH! 

Gold & Silver spent the day trying to overcome the early morning selling, but failed miserably at doing so, with Gold losing $4.50, on the day to close at $1,7776.60, and Silver losing 12-cents to close at $20.25… You know what I think? I think that I’m ok with the price manipulators putting a cap on Gold at $1,800… When I bought my first Gold in 2005, I paid $600 for it… So, a price of $1,800 is quite nice as far as I’m concerned, but for others that bought it later well, this cap at $1,800 had really put a damper on things…

The pogo stick that the price of Oil is attached to, went down yesterday, and by a lot! The price of Oil ended the day trading with a $87 handle… Oil traders just can’t seem to make up their minds about the direction of the price of Oil… As I said yesterday, we’re waiting on the next OPEC meeting where they will discuss keeping production at current levels, or narrowing it, due to lack of demand…

Bonds traded sideways on Tuesday, not getting bought or sold, and the yield on the 10-year traded at 2.82% all day…

In The Overnight markets last night… the currencies & metals got ambushed once again overnight… the dollar is getting bought overseas like funnel cakes at a State Fair! The dollar has pushed the currencies back to the levels they were a week ago, with the euro leading the currencies down. The BBDXY, gained 4 index points and sits this morning at 1,273…  The Aussie dollar (A$) has lost all of its gains from late last week and looks very sickly again. 

Gold & Silver are getting sold this morning too, with Gold down $9 to start the day, and Silver down 27-cents, which brings Silver back below the $20 figure. From everything I read, and put together in my mind, is that the markets have forgotten about a Fed pivot and are now convinced that the Fed will continue with its aggressive rate hikes.  

These traders are not going to let the fact that the U.S. rates might be rising, but they are still a long way from equaling inflation… To me, that would be a BIG consideration, when valuing a currency, but then, that’s just me… You know the guy that thinks logically… 

The price of Oil is stuck on the downside of the pogo stick its been riding for some time now, and Oil is trading this morning with a $86 handle… I’m amazed that our friends (NOT!) at OPEC, haven’t announce a production cut to even out the price… Maybe it’s still coming, but I have to wonder, when the hell they are going to do it? 

And Bonds, are the picture that is illustrating the change of trader’s minds on the Fed Pivot, as the yield of the 10-year rose to 2.89% in the past 24 hours. 

Yesterday, the good folks at GATA reported that : “A new international standard for the precious metals market, the Moscow World Standard (MWS), should be created to become an alternative to the standard of the London Bullion Market Association (LBMA), the Russian Finance Ministry said.

A letter from the Ministry of Finance to industry participants says that “an independent international infrastructure” is needed to “normalize the functioning of the precious metals industry.”
According to the department, it is critically necessary to create it, RIA Novosti reports.”

Chuck again… The Ministry of Finance wants to make membership in this organization attractive to all foreign market participants, especially China, India, and Venezuela, Peru, and other countries of South America, as well as Africa. The agency expects that such a move will quickly break the LBMA monopoly and ensure the stable development of the industry… I hope it does… I really do, for too long the LBMA has allowed all the foolishness and shenanigans in trading and setting prices, so in my mind, they deserve to have their monopoly broken apart!

Ok, I have something for you from Bill Bonner, who took the first part from Bloomberg; “Dr. Doom’ Roubini Sees Either US Hard Landing or Uncontrolled Inflation
“The fed funds rate should be going well above 4% – 4.5%-5% in my view – to really push inflation towards 2%,” the chairman and chief executive officer of Roubini Macro Associates said in an interview on Bloomberg Television.”

That’s it. Those are the choices. Inflate the bubble. Or let it die.

Roubini says he thinks hopes for a Fed “pivot” – from tightening to loosening – is “delusional.”

In the near term, he is certainly right. Fed governors are not stupid… at least, not in a conventional way. It took many years of study to become the simpletons they are.

And they are still human! Let’s not forget; they don’t like people laughing at them behind their backs any more than anyone else. And now, everyone can see that they made a huge mistake by not raising interest rates sooner. Then, they made another huge mistake by not recognizing the threat of inflation sooner… and still another big mistake by believing it would go away like a summer shower.

Instead, inflation has settled in… and has been drenching consumers for more than a year.”

While I tend to side with Mr. Roubini on this, I have this caveat… What if the Fed Heads think that inflation has peaked, and they don’t need to hike rates any longer? Was July’s dip of the inflation rate, a trend, or just a blip on the screen? I guess we’ll have to wait-n-see when this all comes to pass next month, eh?

OK… onto other things… I saw this on yesterday, and thought it was worth mentioning… “The National Association of Home Builders/Wells Fargo Housing Market Index dropped 6 points to 49 this month, its eighth straight monthly decline. Anything above 50 is considered positive. The index has not been in negative territory since a very brief plunge at the start of the Covid pandemic. Before that, it hadn’t been negative since June 2014.

“Tighter monetary policy from the Federal Reserve and persistently elevated construction costs have brought on a housing recession,” said NAHB Chief Economist Robert Dietz.

Of the index’s three components, current sales conditions dropped 7 points to 57, sales expectations in the next six months fell 2 points to 47 and buyer traffic fell 5 points to 32.

Despite higher costs for land, labor and materials, about 1 in 5 builders in August reported lowering prices in the past month in an effort to increase sales or limit cancellations. The average drop reported was 5%.”

Chuck again, I doubt that many would consider a drop of 3% to be a real mover and shaker, but it could be the beginning of a long trend in housing… And I can’t say that I believe it won’t happen!

Because… While I’m still of the belief that the Fed Heads are thinking that they are nearing the end of their rate hikes, it doesn’t mean that they won’t still hike rates in coming months, and as rates ho higher, home prices go lower… It’s a simple fact, Jack!

Well, circling back to the currencies… They’ve been dragged through the mud for months, years, maybe even a decade now, and it just doesn’t see it will ever be their turn to rally VS the dollar… Well, if they the respective countries of these currencies, had been prudent and not followed the Fed down the road to hell and high water, they would be in a better position to rally VS the dollar… But as it is, they are not in any position to rally VS the dollar, at the moment… That moment could change in a NY minute, but for now the moment is dollar strength…

In the old days… I would look at a country like New Zealand, and their 3% OCR, and compare it to the U.S. and their 2.5% FFR, and say, that kiwi should be rallying VS the dollar… An investor could earn 50 Basis Points more on their deposits in kiwi than dollars… That’s how we traded currencies back in the day… But no longer, because a country could have 200 Basis Points advantage VS the dollar, and trader sentiment would decide which currency got bought… I have to say that I’m glad that I’m no longer a trader trying to pick out currencies that investors should buy…

The U.S. Data Cupboard yesterday, had Industrial Production, which showed an increase in Factory production in July… Hmmm… Capacity Utilization also increased, which is good sign for Corporations in my humble opinion… 

Today’s Data Cupboard has the July Retail Sales for our viewing pleasures… I told you on Monday, that the Butler Household Index  (the BHI) wasn’t indicating that Retails Sales will be strong… So, we’ll find out if the BHI was correct or not in a bit this morning. 

To recap… The dollar got sold in the U.S. session yesterday, but in the overnight markets the currencies got ambushed yet again..  These overnight sessions for the dollar has been a bonanza!  The RBNZ did hike rates yesterday to bring their OCR to 3%, but the boost that kiwi got from the rate hike was all gone in the overnight markets last night.  Russia is forming a competitor to the LBMA (London bullion exchange) this ought to be very interesting, as my spider sense is tingling… 

For What It’s Worth…  There’s not a lot out there this morning, so I had to settle for this article on Housing, which doesn’t excite me any, but it is FWIW worthy, and it can be found here: Record Number Of Homebuyers Walk Away From Contracts As Builders Reel Amid Glut Of Unsold Houses | ZeroHedge

Or, here’s your snippet: “Record Number of Home Buyers Walk Away From Contracts as Builders Reel Amid Glut of Unsold Houses

Between cratering home builder and homer buyer confidence…record low home affordability…

… a record number of new listing with price cuts (amid the collapse in demand).

… plunging housing starts…

… and so on, as the recent surge in mortgage rates has effectively pushed the housing market into a recession, which is now so widespread that 63,000 home-purchase agreements were called off in July, equal to 16% of homes that went under contract that month. According to Redfin, that’s the highest percentage on record, and only the brief spike during the covid crash – which the promptly reversed – was worse. It’s up from a revised rate of 15% one month earlier and 12.5% one year earlier. Click to enlarge.

The housing market is slowing as higher mortgage rates sideline many prospective home buyers. With competition declining, the house hunters who are still in the market are enjoying newfound bargaining power, a striking contrast from just a few months ago, when buyers often had to pull out every stop in order to win. Today’s buyers are more likely to utilize contract contingencies that allow them to back out without financial penalty if something goes wrong. And with an increasing number of homes to choose from, they’re also more likely to call a deal off if a seller refuses to bring the price down or make requested repairs—a situation that has become increasingly common given that sellers are still adjusting to the cooling market.”

Chuck Again…  I remember telling you before the Fed started their rate hikes, that if the Fed carried through with their plans that they would squash the Housing Bubble… Maybe that’s coming to a theater near you! 

Market Prices 8/17/2022: American Style: A$ .6945,  kiwi .6291,  C$ .7750, euro 1.0161, sterling 1.2083, Swiss $1.0500, European Style: rand 16.6127, krone 9.7042, SEK 10.3985,  forint 397.95,  zloty 4.6261,  koruna 24.1543, RUB 60.52, yen 135.07, sing 1.3825, HKD 7.8415, INR 79.44, China 6.77792, peso 20.03, BRL 5.1473,  BBDXY 1,273.09, Dollar Index 106.60,  Oil $86.33, 10-year 2.89%, Silver $19.52, Platinum $927.00, Palladium $2,132.00, Copper $3.62, and Gold… $1,767.92

That’s it for today… After my journey around the country with the band I played in during the summer of 1973, I hooked up with a guy that was a blues guitarist, and we jammed together for hours. The reason I bring this up now, is that the Allman Brothers song: In Memory of Elizabeth Reed, is playing, and that’s one of the songs we used to play together…  That’ll be our song for the finish line today… I hope you have a Wonderful Wednesday today, and please remember to Be Good To Yourself!

Chuck Butler