Fed’s Inflation Warnings Surprise The Media?

February 1, 2018  

* Currencies founder on Wednesday…

* But Chuck thinks it will be short-lived..  

Good Day… And Welcome to February, a good month in my book now that I spend in South Florida… We have a holiday weekend, Valentine’s Day, and most importantly, pitchers and catchers report to spring training! And this year Spring Training Games actually start the last week of February! YAHOO!  It’s a Tub Thumpin’ Thursday, but not for me. I’ll remain hunkered down with my deformed face…  Good friend, Gus, stopped by yesterday to check on me since it was a nice day out, and I wasn’t outside soaking up the sun.  What a good friend!  Bob Seeger and the Silver Bullet Band greet me this morning with their song: Turn The Page..  It’s a song about being on the road in 1971, I relate to this song because just two years later I was on the road too!  

The Currencies didn’t really move much yesterday, but the move they did make was downward, except the Chinese renminbi, and Norwegian krone teaming up to fight the dollar yesterday and in the overnight market. There are some currencies that have traded flat, like the Hungarian forint, and the Swiss franc. The rest of them saw some lost ground on the day and night.  The Biggest Loser in the past 24 hours has been the Aussie dollar (A$).  

I told you earlier in the week that the A$’s rise to 81-cents was being looked at by the A$ bears as an opportunity to bring it back down, and they have…  The A$ lost over 1 full cent yesterday and overnight, and the A$ bears said that they believed that the Aussie inflationary pressures had slipped in the December QTR, and that would push back the thought that the Reserve Bank of Australia (RBA) was ready to begin a rate hike cycle. 

The New Zealand dollar/ kiwi, which had been quite the perky looking currency lately, sold off in sympathy with their kissin’ cousin across the Tasman.  I get the feeling that this selling of kiwi will be short-lived… So, this may be an opportunity to buy at cheaper levels, in hopes of better days ahead!    

The reason I say that goes for all the currencies.  You see I’ve said that the dollar has entered a new weak trend, but a trend is not a ONE-WAY street, and there could be volatility like we saw yesterday.  And I’m not the only one that has recognized what’s going on, although I have to admit I was the first (last June, to make the call!)  Let’s listen in to the analyst at PIMCO who was talking on Bloomberg.com, about how the U.S. has entered a Cold War with the dollar that they winning.  The U.S. want’s the dollar weaker… so here is PIMCO.. 

“Cold wars are not fought in open battle (for example, with currency intervention), but with words and covert actions,” Fels said. “These actions are sending an implicit but very clear signal to markets: A weaker dollar is the goal. Markets have understood the signal.”  

The dollar has lost 12% since the start of 2017 (in the Dollar Index) and I foresee more losses, especially with the growing twin debts. We talked about the national debt growing by leaps and bounds yesterday (actually Bill Bonner was doing the talking!) And today we’ll get to the ever increasing Trade Deficit, that if it keeps growing, and I believe it will given the trade war going on, the U.S. is going to want a much cheaper dollar to deal with the Trade Deficit. 

Speaking of the Trade War… China joined officially last night, when a Chinese official said that China would retaliate VS the Trump tariffs on Chinese solar panels we talked about 10 days or so ago.  So, game on Garth!  Game on Wayne!  

There was no surprise yesterday when the Fed announced that they were leaving rates unchanged, in Janet Yellen’s last Fed meeting as the “Leader of the Pack”…  But there was surprise by me that the media made such a Big Deal out of the fact that Fed’s statement contained a comment about how they saw inflation increasing this year…  

Geez, Louise, where have these media people been? The Fed has been forecasting an increase in inflation for the last few years every chance they got!  I guess this just proves that if you just stick to your story long enough that maybe you’ll get lucky and it will come to fruition. I say that because I too think inflation is ready to take off for higher ground, finally.  

Gold bulls have also seen this inflation coming, and I think that’s a lot of the reason that Gold has rallied about 20% in the last 12 months with 12% coming in the past few months. You can’t tell me that most of that move wasn’t fueled by inflation fears…  

Gold, yesterday, saw a $6.90 gain to $1,345… This past week, Ed Steer has been reporting monstrous levels of contracts traded, with some days reaching over 500,000 contracts traded. Yesterday’s total was 365,000. There’s a lot of interest in Gold going on right now folks, and I don’t expect it to remain stuck in the current range too much longer.  I’m just saying… 

The price of Oil gained back a buck in the past 24 hours after a report showed that gasoline supplies had fallen significantly. Oil trades with a $65 handle this morning. 

The U.S. Data Cupboard had a decent day at the office yesterday, as the ADP Employment Report printed 234,000 jobs created in January, which is a much stronger number than the forecast for the BLS jobs report that will print tomorrow at 185,000…  Then the Employment Cost Index (ECI), which you would see wage increases in, was a bit weaker than in the 4th QTR, but the year-to-date figure showed a nice increase of 2.6% VS 2.2% in 2016…  The Chicago PMI (manufacturing for the region) fell a bit to 65.7 from 67.8 in December…  But these regionals don’t every really equate to what the national PMI shows, so we’ll move along here…  And then finally, the FOMC meeting announcement, which we already talked about above. 

To recap…  The Fed left rates unchanged, no surprise, but the surprise came at how the media got all juiced up over the Fed’s statement that expect inflation to grow in 2018. The Fed has been like the boy who cried wolf by calling for rising inflation for the past couple of years and then not seeing it. But Chuck thinks this year they might be right! The currencies had a bad day, with only 2 currencies gaining VS the dollar, but Chuck thinks that this will be short-lived…   

Before I head to the Big Finish today, I wanted to make one final run at bringing yourself to help the Pfennig be named the Best FX buy-side letter out there…  I’ll go back to the original request in hopes that if you procrastinated that this gets you going!    Here’s what I said on Jan 25th: I’ve been nominated for the Best of FX Award given by FX Street…

Now, not that I want to ring my own bell, or blow my own horn (my dad used to tell me there were times you needed to blow your own horn, otherwise it wouldn’t get heard) but I think it’s about time! So, here’s the deal… starting today, and don’t put this off or you’ll forget to do it later, you can go to this website https://goo.gl/forms/Z3K8LIjtr6RYz0z62

Then there are several categories just click “don’t know” if you don’t know these people. When you get down to Best Buy-side Contributor, then you’ll find my name, click on it, and continue to the end, and submit.

It’s important that each category has at least a “don’t know” or else they won’t count your vote. I’m up against some heavy hitters folks, so I know I can count on you, as you’ve always been there when I asked for something!

Let’s go vote! Wouldn’t that be something, IF my little letter from the Midwest, would be named best newsletter in FX? That would be an upset to the proportions of the NY Giants VS the Patriots…  

For What It’s Worth…  this is an article about our ever growing national debt that is quite interesting and can be found here: https://wolfstreet.com/2018/01/30/us-national-debt-will-jump-by-617-billion-in-5-months/  

Or, here’s your snippet: “While everyone is trying to figure out how to twist the new tax cut to their advantage and save some money, the U.S. Treasury Department just announced how much net new debt it will have to sell to the public through the second quarter to keep the government afloat: $617 billion.

That’s what the Treasury Department estimates will be the total amount added to publicly traded Treasury securities – or “net privately-held marketable borrowing” – through the end of the second quarter. This will be the net increase in the U.S. debt through the end of Q2. By quarter:

* During Q1, the Treasury expects to increase U.S. public debt by $441 billion. It includes estimates for “lower net cash flows.”  

Chuck Again… Yes, recall that I told you when the tax plan was announced that it would add $1.8 Trillion to our National Debt? Well, here we go! 

Currencies today 2/1/18… American Style: A$ .7995, kiwi .7344, C$ .8115, euro 1.2435, sterling 1.4243, Swiss $1.0729, … European Style: rand 11.9196, krone 7.6886, SEK 7.88, forint 249.36, koruna 20.2885, RUB 56.24, yen 109.70, sing 1.3132, HKD 7.8207, INR 63.93, China 6.2963, peso 18.61, BRL 3.1768, Dollar Index 89.07, Oil $65.24, 10-year 2.74%, Silver $17.22, Platinum $996.70, Palladium $1,023.75, and Gold… $1,342.90

 That’s it for today… Ahhh, February! One other thing about the month that I forgot was that it was a short month too! So, guys… here’s your 13-day ahead of time public service announcement… You have that many days until Valentine’s Day! I opened up the door this morning to allow some fresh air in and it’s another windy day, the ocean is very angry this morning.  Have you been able to get out at night and see the Super Moon that came up Jan 30th? I love watching the moon rise over the ocean at night…   Steely Dan takes us to the finish line today with their song: Black Cow…   from my fave Steely Dan album, Aja…  And with that it’s time to go! I hope you have a Tub Thumpin’ Thursday, and that you always Be Good To Yourself!  

Chuck Butler