No Worries, Stock Jockeys, Powell Has Got Your Back!

January 7, 2018

* Currencies rally after strong Jobs data

* China reduces reserve ratio requirement… 

Good Day… And a Marvelous Monday to you! The first Monday of the new year too! Well, it was an interesting weekend, with the NFL playoffs, lots a strange calls, if you ask me. I’ve kind of adopted the KC Chiefs this year, as they are from Missouri! The Chiefs will play the Colts this coming up weekend. Our Blues seem to take two steps forward, three steps back, and think they are are “finding something”… It’s sad right now, it what it is. We just had two of the most beautiful days that I’ve experienced in the deep south in January this past weekend… Simply beautiful… And reminded me why I wanted to spend more time here during the winter! I’ve only been here a week, and it only feels like I just got here! Time flies by too quickly for me! The New Radicals greet me this morning with their song: You Get What You Give

Well… I’m puzzled this morning, as I look at the data from Friday… The Jobs Jamboree, according to the BLS created 312,000 jobs in December… But the Unemployment Rate rose from 3.6% to 3.9%, Wait, What? Don’t shoot me, I’m just the messenger, but that’s what the folks at MarketWatch are telling me… Makes no sense, but then when has a BLS, hedonically adjusted, jobs report made sense to me? How many of those jobs were “seasonal, or temporary” for the Christmas shopping season? That’s the only thing I can think of that would drive that jobs number so high…

The markets looked at the data, had its usual knee jerk reaction with stocks rallying, along with the dollar, but by day’s end, things had changed… And here’s the real puzzling part… I read that the markets saw the 312,000 jobs created in December, and decided that the economy was going downhill from here… Really? Now, I agree that the economy is going nowhere but downward, but not because the BLS posted a 312,000 jobs created number!

And then we had Fed Chairman, Jerome Powell, made some statements that really got things moving… He said that “that the Fed is not on a preset path of interest rate hikes and that it will be sensitive to the downside risks markets are pricing in.” And then he went further to say that “The Fed is prepared to shift the stance of policy” Sounds pretty dovish don’t you think? I feel like screaming from the rooftops… “Don’t worry stock Jockeys, Powell’s got your back!” 

OK… Well, the dollar, originally rallied on the jobs report on Friday, but by day’s end, the currencies were fighting back, and as I open up the currency screen this morning, the euro is back to 1.14… And the Commodity Currencies are rallying, led by Aussie dollar (A$), as China reduced their reserve ratio on banks last Friday, which is akin to a rate cut, and that got the Commodity Currencies back on the rally tracks. I wouldn’t got all hog in on this news, as a rate cut, can only provide so much, and then it needs some follow up…

The Chinese are known to go “for the hit” and then sit back and see what happens… So, the Powell quotes will go a lot further to promote a currency rally than the lowering of the Chinese banks reserve ratio requirement.
The precious metals are really romping VS the dollar this morning, as Gold is up over $5, and Palladium is up over $8 as I write… Can you imagine the chagrin on the faces of those that sold their Gold on the jobs data news from last Friday, only to see Gold rally today?

The 10-year Treasury’s yield continues to point to lower rates this years… The Bond Boys Do NOT believe the Fed is going to continue to hike rates going forward… And I’ve told you all this many time in the past to keep an eye on what bond traders were doing… And this time is no different!

There was an important piece of data that printed last Thursday here in the U.S….  It was the ISM Manufacturing Index for December, and it was rotten! The index number slipped from 59.3 to 54.1…  Yes, it’s still above the line in the sand number 50, that determines whether or not the manufacturing sector is contracting or expanding… But a one-month drop like that should not be ignored…  Of course I always say that one swallow doesn’t make a summer, and that goes both ways, so we’ll have to wait-n-see what the color of January’s Index number before a trend can be called… 

In the Eurozone this morning, we saw November Retail Sales print an unchanged +0.6% gain from the Rocktober print, but on a year on year basis, Retail Sales in the Eurozone fell from 2.3% to 1.1%… And that’s not a good trend, folks… But the euro traders have shrugged the data off and decided that the dollar has larger problems…  Which brings me to something I haven’t talked about in some time, and that is the relationship of the euro to the dollar… 

The euro is the offset currency to the dollar, it took this position over from pound sterling not long after the euro was introduced. It soon became the second most traded currency, and it didn’t take long for it to become the offset currency to the dollar.  When you’re the offset currency to the Reserve Currency of the world, your country’s individual fundamentals take a back seat to what’s happening to the Reserve Currency, which in this case is the dollar. 

When the dollar was  last, firmly placed, in a weak dollar trend the euro soared to near 1.50, and the Eurozone’s fundamentals weren’t anything to write home about… So, the point I’m trying to make here, is that should the dollar begin another weak trend, we could very well see the euro soar once more, even with negative interest rates! 

The price of Oil has bounced off the lows of last week, when it appeared that the price of Oil was about to circle the bowl… But then it didn’t, and began to ratchet higher and this morning the price of Oil is trading with a $49 handle, and last week it was trading with a $44 handle. This rally has helped the Petrol Currencies regain some curb appeal…   And once again has shown that even a blind squirrel can find an acorn! 

The U.S. Data Cupboard will have November Factory Orders this morning, and that’s about it. The ISM non-manufacturing index will print, but this represent “service”, and I’ve long said that we’ve become a “service” country and our service sucks eggs!  So, I don’t pay much attention to that data… The Factory Orders for Rocktober were negative -2.1%, So, I would think that some healing here could be seen for the November print… 

To recap…  The Jobs Jamboree was a doozy on Friday with 312,000 jobs created, but a funny thing happened on the way to the forum, the markets began to question the data, and then Fed Chairman Powell, made some very dovish comments, and by day’s end, the dollar was getting sold… Gold is up $5 in early morning trading today, and Palladium has reached $1,300! WOW!  

Before we head to the Big Finish today, I wanted to make one more point that things aren’t as good as the media would have to believe they are… of the 312,000 jobs created in December, 117,000 of them were to people taking on 2nd jobs…  I’m just saying… 

For What It’s Worth… Well, I’ve talked about the economic sanctions placed on Russia by the U.S. and European Union, until I’m blue in the face, but then along came this article in the RT that talks about why these sanctions are working in Russia and it can be found here:

Or, here’s your snippet: “The country with the largest mineral reserves in the world, Russia, is the second top exporter of rare earth minerals. Its natural resources are estimated at tens of trillions of dollars.

It has abundant supplies of oil, natural gas, timber and valuable minerals, such as copper, diamonds, lead, zinc, bauxite, nickel, tin, mercury, gold and silver. Most of those resources are located in Siberia and the Far East.

Russia’s mining industry, which is the country’s second largest after oil and gas, accounts for a significant share of its GDP and exports. The country is among the top three producers of mineral commodities such as platinum, gold and iron ore. It is also the world’s largest producer of diamonds and palladium. The Ural Mountains have vast amounts of minerals while most deposits of coal, oil, gas and timber are located in Siberia.

Russia is the world’s fifth largest producer of coal, with reserves of about 175 billion tons. Most of those mines are in Siberia and the Urals.
The timber industry, which is worth about $20 billion annually, is also a significant economic contributor to the Russian economy. The country’s fishing industry is the fourth largest in the world.

The value of Russia’s resources is huge and, according to statistics, is Estimated at $75 trillion. In comparison, the US natural resources are worth approximately $45 trillion while China’s stand at $23 trillion.”

Chuck again… And no… I’m not a cheerleader for Russia, I’m just attempting to show that the economic sanctions are having the effect on the Russian economy that they were supposed to, and therefore they should be eliminated.  That’s all… 

Currencies today 1/7/2019: American Style: A$ .7125, kiwi .6756, C$ .7484, euro 1.1442, sterling 1.2750, Swiss $1.0184, European Style: rand 13.9080, krone 8.5825, SEK 8.9395, forint 280.60, zloty 3.7523, koruna 22.3334, RUB 67.31, yen 108.36, sing 1.3575, HKD 7.8353, INR 69.48, China 6.8671, peso 19.38, BRL 3.7106, Dollar Index 95.93, Oil $49.13, 10-year 2.64%, Silver $15.75, Platinum $827.97, Palladium $1,310.20, and Gold… $1,291.31

That’s it for today…  Well, did you team win? The college Football Championship Game is tonight… Clemson VS Alabama…  And yes, we’ve seen this match up before in the Championship game… Well, if you don’t like seeing these two play for the Championship, beat them before they get here!  Another Chamber of Commerce Day here is expected today, so I’ve got that going for me! There’s a chance there won’t be a Pfennig tomorrow morning as I’ll be playing Uber driver to the airport!   I’ll do my best to get one out, but then one never knows, right?  The Beatles take us to the finish line today with their song: The Long And Winding Road…   One of my fave songs from the Fab Four…  I hope you have a Marvelous Monday and remember to Be Good To Yourself!

Chuck Butler