I’ll See Your Raise of Tarrifs And Increase The Bet!

April 4, 2018      

* Eurozone prints some good data today   

* Was smoke & mirrors used to count Car Sales?


Good Day… And a Wonderful Wednesday to you! Rain, rain go away, Chuck wants to go out to play! Rain came down in buckets at times yesterday, and the temp dropped throughout the day all the way down to the lovely 29 degrees it sits at this morning… UGH! Some spring, eh? Old Man Winter still has a grip on us, and Mother Nature can’t wrestle him for control. It’s the same with the dollar bugs, they just won’t let go, and still think the dollar is the place to be, even though the dollar has lost 13% value in the past year and couple of months… Neil Young greets me this morning with his song: The Needle And The Damage Done…  I played that song on my guitar and sang for a group of EverBankers on Amelia Island about 8 years ago, maybe more now that I think about it!    Time flies when you’re having fun!  

Well, I turned on the currencies screen this morning thinking that the recent slippage in the euro and other currencies would be reversed, but that was not to be, and instead of a reversal, what I saw was more slippage… UGH!  So, why did I think I would see a reversal of recent weakness in the currencies?  

Ahhh grasshopper, I’m glad you asked!  Well there are two reasons… First and foremost, the U.S. announced more tariffs, to the tune of 25%, on Chinese goods yesterday. The list of goods was so long, that you need a spreadsheet to keep track of them. But that’s not it… China retaliated this morning with an announcement of $50 Billion in new tariffs, mostly on agriculture, including soybeans.. 

The Trade War is really heating up, but through the fog we hear a faint voice calling out to us from China, saying that there’s still time for negotiations… But, in a move that I’m not happy about, the President has gone full-ahead with his tariffs, as if he wants a Trade War with China… 

The other reason I was looking for a reversal is the Eurozone printed some good data today…  First, Eurozone inflation grew 1.4% in March and is going to put pressure on the European Central Bank (ECB) to begin to unwind their stimulus measures, including bond buying and negative deposit rates… In addition, Eurozone Unemployment dropped to a 9-year low in March, to an 8.3% level…  But the dollar bugs have a grip on the currencies right now, just like old man winter has a grip on the weather! 

The Peoples Bank of China (PBOC) didn’t allow an appreciation in the renminbi last night, choosing instead to mark it down. The PBOC probably put the brakes on the recent string of appreciations because they were getting out of whack with their trading partners…  You see, if the Russian ruble and euro were also gaining then the appreciations would continue, but with them seeing slippage, the renminbi has to follow, or else get out of whack with their trading partners’ currencies.  

Gold lost $8.60 yesterday, continuing the recent trading pattern of seeing Gold rise one day, only to see it get whacked the next day. And that’s played out today with Gold up $10 in the early morning trading today.  I saw a note from friend, Rick Rule, the commodities guru, with Rick saying that Gold will easily move higher to $1,400 if an all-out Trade War breaks out… 

I also saw some data from the Perth Mint that showed sales of Gold products rose about 13 percent in March from a month earlier, while month-on-month silver sales fell for second month in a row.  And Gold sales climbed about 34 percent in March compared with the same month last year!  So demand for physical Gold is good and strong right now, but these things like the amount of demand get thrown to the curb by the price manipulators when they decide it’s time for a whacking…  One of these days, Alice!   

The prices of Platinum and Palladium are really on the skids these days and it’s all about the car sales around the world, but especially here in the U.S.  Vehicle Sales in March surprised the markets and me with a rise from the February figure… I don’t know how the folks that compiled this data did it, if they used smoke and mirrors, or an abacus, but from everything I read about car sales, I don’t see how they could post a rise in the number of cars sold…  Just the other day, Bloomberg ran an article talking about how subprime buyers were going missing from the car dealerships’ showrooms… So, anyway you slice the salami, falling car sales figures are really putting pressure on Platinum and Palladium… 

Have you noticed the drop in yield of the U.S. Treasury 10-year in the currency roundup? What looked like a rout on the yield and its next stop would be 3%, has turned around, and the U.S. Treasury 10-year’s yield has dropped to 2.75%… I think this is important folks… So pay attention if you can.. The bond boys are not fond of what the U.S. is doing with tariffs, and they believe like me that the U.S. economy will get whacked, and so they buy bonds, thus pushing the yield down… Remember, bond pricing is derived by an inverse relationship between price and yield.  If the price of the bond goes higher, the yield goes down, and vice versa…  

And the price of Oil is seeing the Trade War as a reason to ignore the latest report on supplies showing a HUGE DROP, and so the price of Oil has dropped $3 in the past few days… And this drop in the price of Oil has really played hell with the Petrol Currencies from Russia, Norway, Canada and Brazil. 

Today’s Data Cupboard has some interesting data to print today including; the ADP Employment Report for March, Factory Orders for Feb, and the Fed’s meeting minutes from their last meeting…  Of these three data prints, I would think the ADP Employment report is the most important, followed by Factory Orders, and then the meeting minutes, which quite frankly I don’t give two hoots about!  

To Recap…  The dollar bugs have a firm grip on the currencies right now, just like Old Man Winter has on the weather… The euro couldn’t find any love from two good prints for them starting with inflation rising, and Unemployment dropping. The Trade War is to blame, right now, with the U.S. placing 25% tariffs on a long list of Chinese goods, and China retaliating with $50 Billion of tariffs mostly on agriculture… UGH!  Gold got sold yesterday, but is up in the early morning trading today.  

For What It’s Worth…  This is BIG NEWS folks… I told you in the last year that Russia was working on an alternative to SWIFT (worldwide payments system that the U.S. threatened to lock Russia out of after the conflict in Ukraine) and they are ready to go live! You can read about it here: https://www.rt.com/business/418665-russia-banks-ready-shut-swift/    

Or, here’s your snippet: “Russian financial institutions and firms are ready to work without SWIFT’s interbank cash transfer services, according to Deputy Prime Minister Arkady Dvorkovich.

The potential disconnection of Russia from SWIFT has been under discussion since 2014, when the EU and the US introduced the first round of international penalties against Moscow over alleged involvement in the Ukraine crisis and the reunification with Crimea.
At the time, the European Parliament called for strong actions against Russia, including expelling the country from money transfer services. However, the Society for Worldwide Interbank Financial Telecommunication regarded the recommendations as violating rights and damaging for businesses.

In 2017, Russia’s Central Bank Governor Elvira Nabiullina told President Vladimir Putin that the banking sector had been provided with all the necessary conditions for operating lenders and payment systems in case of disconnection from SWIFT. According to the regulator, 90 percent of ATMs in Russia were ready to accept the Mir payment system, a domestic version of Visa and MasterCard.

The Mir payment system was introduced in 2015 after clients of several Russian banks (SMP Bank, InvestCapitalBank, Russia Bank and Sobinbank) were unable to use Visa and MasterCard due to the sanctions.”

Chuck Again… Just another step in the direction that Russia and China are working toward that will bring about a change in the current currency regime…    

Currencies today 4/4/18… American Style: A$ .7675, kiwi .7280, C$ .7795, euro 1.2278, sterling 1.4035, Swiss $1.0428, European Style: rand 11.9070, krone 7.8532, SEK 8.4034, forint 253.92, zloty 3.4265, koruna 20.5478, RUB 57.53, yen 106.13, sing 1.3147, HKD 7.8487, INR 64.81, China 6.2857, peso 18.32, BRL 3.3180, Dollar Index 90.10, Oil $62.36, 10-year 2.75%, Silver $16.44, Platinum $921.24, Palladium $923.82, and Gold… $1,347.30

That’s it for today… What an awful end to the baseball game last night with my beloved Cardinals blowing the game. I sent off my taxes for 2016 to the tax guru yesterday… I know it’s late, but when you have to pay like I always have to do, better late than early! At least that’s my story and I’m sticking to it! HA! The Home opener is tomorrow here in St. Louis. We do Home Openers like no other team and I used to love being there for the festivities prior to the game, but my “source” for opening day tickets has me on the personal non gratis list these days, and so I watch the festivities from home… Buddy Miles takes us to the finish line with his song: Down By the River…  Which always reminds me of the line from the late great Chris Farley… I live in a van down by the river!   And with that, it’s time to go… I hope you have a Wonderful Wednesday, and Be Good To Yourself! 

Chuck Butler