Mom, He’s Doing It Again!

June 19, 2018 

* Euro gets thrown under the bus again by Draghi

* Anything you can do, I can do better! 

Good Day… And a Tom Terrific Tuesday to you! It’s not quite a Tom Terrific Tuesday for the currencies, as they’ve been sold in the overnight markets. The Cardinals come back late, but lose in extra innings last night. UGH! Thanks to all that sent along nice notes about my scans results. I truly appreciate your kind words! The Outlaws greet me this morning with their 9 minute long song: Green Grass and High Tides…  My good friend, Mike (from the hood) likes this song when playing songs on our juke box at the local watering hole, because he “gets his money’s worth”… HA! 

Well, I spilled the beans right out of the starting gate this morning… The currencies got sold in the overnight markets last night… Which is strange to see, because normally, we see the overnight markets be more dollar bearish, but not last night… President Trump upped the ante in this Trade War by telling the markets that he would be adding $200 Billion in tariffs to Chinese goods…  And China’s Xi, responded that China would match the $200 Billion in tariffs of American goods.

Yesterday, it was a “anything you can do, I can do better” day for the leaders of the worlds two largest economies. China was first to say that they would outlast the U.S. in this Trade War, and that was followed by the U.S. saying they would outlast China in this Trade War…  I was already putting together some thoughts for next week’s Dow Theory Letter piece last night, so I’ll give you a little tease of what’s in it… just a small tease, because readers of the letter do pay for it! But I pointed to China’s savings horde as a reason that I believe Xi just might be right…  

So, what got the dollar bulls all lathered up overnight? Well, it was probably ECB President, Mario Draghi, speaking in Portugal that sent the dollar bulls into a tizzy again…  Mario Draghi addressed the bank’s approach to increasing interest rates, saying it will be patient in determining the timing of the first hike, then taking a gradual approach going forward.   

And that was all it took to remind the markets that they whacked the euro last week for the same crap from Draghi, and they went right back to work pushing the lead / Big Dog currency (the euro) back down… Alright then! We get it Mario! You’re not going to hike rates for the Eurozone for another year, and then you’re going to go at it very slowly, thinking that he’s the turtle in the fable the turtle and the hare… 

I’ve got news for you Mario, that’s all fine on paper, but when global inflation takes off this year, what are you going to do then? Germany’s Bundesbank will be all over you to hike rates because Germany has a long history with runaway inflation, and have vowed to never allow that to happen again… 

In the U.K. yesterday, the pound dropped to a seven-month low against the dollar after U.K. Prime Minister Theresa May lost a vote on her BREXIT legislation in the House of Lords. There’s another vote tomorrow, but from the looks of things, May’s proposals aren’t getting any love, and I’ve said for some time now that the pound would struggle because of these BREXIT negotiations…

The Aussie dollar (A$) has gotten all caught up in the “faster pace” rate hike talk in the U.S., as U.S. rates are for the first time in my life as a currency guy, higher than those in the land of OZ… (Australia for you new readers)… Of course had the Reserve Bank of Australia (RBA) begun their rate hike cycle by now as I implored them to do late last year, this new situation wouldn’t be happening! But then, why would the RBA listen to some country bumpkin from the middle of the U.S.? What does he know about what’s going on in Australia, that he could suggest the RBA is dragging their feet to hike rates, even with housing bubbles popping up all over the island nation?  

The “boys in the band” decided to take a pause for the cause yesterday, and only 170,000 contracts traded in Gold, but the threat of another engineered takedown by the price manipulators held Gold back on the day, with the shiny metal able to eke out a gain of $1.00…  I have a dear reader who is at odds with me on my thought that Gold will see a breakout to the upside this summer. He writes a commodity letter, and just doesn’t see Gold going anywhere this summer… So, there you have it… fair and balanced, and you dear reader get to decide which thought you will follow…  I thank Mickey F. for his contribution to the letter… 

The price of Oil took another drop down in the past 24 hours… Our friends at OPEC (NOT!) will meet this week to discuss the output question… But hanging over them like the Sword of Damocles is a vote in Washington where lawmakers there resurrect the ” No Oil Producing and Exporting Cartels Act,” or NOPEC, which would make members subject to the Sherman antitrust law, last used to break up John Rockefeller’s oil empire.

The bill’s chance of  passing have snowball’s chance in hell, but the impact on the oil industry, should hell freeze over, would be HUGE!

The Wall Street Journal (WSJ) reported this little ditty… “JPMorgan Chase & Co. agreed to pay a $65 million fine to settle claims that it tried to manipulate a global interest rate benchmark, the latest fine levied by U.S. regulators to punish crisis-era manipulation schemes by large banks.

The Commodity Futures Trading Commission said JPMorgan employees between 2007 and 2012 made false reports and attempted to manipulate the U.S. Dollar International Swaps and Derivatives Association Fix, a benchmark that is referenced in many derivatives products.”    

Again, no one goes to jail… and $65 Million? that’s like a drop in a bucket for JP Morgan Chase and Co. I would go as far as saying that I’m sure they made far more money than the $65 Million in the scheme… And the $65 Million, once again is just a “cost of doing business”…  I shake my head in disgust at this stuff folks, it’s just one scandal after another for these big banks, when will it all end? 

The U.S. Data Cupboard is still void of any real economic data this week, and we’ll see the Housing Data for May, and that’s it… However, Fed St. Louis president, James Bullard is scheduled to speak today, and he’s always good for a market moving quote… I wonder what’s on his mind today? 

The Data Cupboard is pretty bare this week, so out trot the Fed Heads to give speeches… It was Bostic yesterday, Bullard today, Kashkari tomorrow, and so on… I’ve said this before, but I truly like the “old days” when the Fed Heads were almost anonymous to the every day investor, and they didn’t give their opinions in speeches throughout the month… 

To recap…  Draghi did it again… reminds me of the old KSHE Radio TV commercial, with the dad playing air guitar to Brown Sugar, and his daughter catches him, and then yells, “Mom, he’s doing it again!” Of course it would have been better if Draghi was playing air guitar yesterday instead of repeating his promise to not hike rates for some time and then gradually once the rate hike cycle begins… The euro got whacked once again, and brought all the other currencies along for the ride on the slipper slope.  Trump and Xi play a game of “anything you can do I can do better”, and the markets get whipsawed by the talk of more tariffs… 

For what It’s Worth… OK, this is good… For as long as I can recall, I’ve been telling readers that currency (FX) intervention might work in the short term, but that’s it, as it becomes a losing deal…  I saw this on Ed Steer’s letter this morning and had to highlight it here, because it’s as if this guy just figured that intervention doesn’t work, and it can be found here:

Or, here’s your snippet: “The good news for the Brazilian Central Bank was that these ongoing interventions managed to stabilize the Brazilian real last week, when the BCB unveiled as much as $10BN in weekly swaps to spook the shorts and halt the capital flight, which succeeded in sending the USD/BRL back to 3.70, and stabilizing the BRL in the 3.70-3.80 range.

There was just one problem: as we reminded the market last week, these massive swap interventions would have to be settled at some point, and only then would it emerge just how naked the Brazilian FX reserve emperor truly is.

Just 4 days later, it was none other than Brazil itself which confirmed our warning, because as Bloomberg reports on Monday afternoon, citing an unnamed central bank official with direct knowledge of issue, that the volume of currency swaps the Brazilian central bank is currently offering to reduce volatility is not sustainable through the Oct. general election.”

Chuck Again… I told you, I told you, I told you! Oh, wait, Chuck, there’s probably not a soul in Brazil much less the Brazilian Central Bank members that read the Pfennig! Yeah, you’re right… Oh well, if they had… HA!

Currencies today 6/19/18… American Style: A$ .7365, kiwi .6898, C$ .7538, euro 1.1550, sterling 1.3170, Swiss $1.0043, … European Style: rand 13.8675, krone 8.2140, SEK 8.9310, forint 280.90, zloty 3.7355, koruna 22.3746, RUB 63.33, yen 109.85, sing 1.3584, HKD 7.8495, INR 68.29, China 6.4374, peso 20.63, BRL 3.74, Dollar Index 95.19, Oil $64.97, 10-year 2.89%, Silver $16.35, Platinum $878.94, Palladium $981.42, and Gold… $1,278.43

That’s it for today… A little shorter today, which means I wasn’t as loaded for bear today as yesterday… writing every day, can begin to feel like a broken record for the writer… But on “days off” I sit here and read and find things I want to talk about! So, there’s never really any “days off”…  I’m not complaining, just making a point… Besides nobody want to hear a complainer! Another day of “extreme heat” according to my weather alert this morning… I stepped outside yesterday evening and it was a nice summer evening with a little breeze blowing, not too shabby! So, Mike Matheny, maybe Mikolas needed to warm up longer before starting the game last night, eh? I’m just saying… And with that, Heartsfield takes us to the finish line today with their song: The Wonder Of It All…  (I’ll never cease to be amazed at the wonder of it all)  So, let’s go out and make this a Tom Terrific Tuesday, and please Be Good To Yourself!

Chuck Butler