The Dollar Bugs Head Back To The Wallboards…

August 20, 2018 

* Currencies & metals rally on Friday

* MAERSK says U.S. economy will be hurt from Trade War! 

Good Day… And a Marvelous Monday to you! What a way to turn the season around by my beloved Cardinals, coming home and playing winning baseball in front of the home crowd, has been something so lacking these last couple of years, but that ended last week with a 7-game home stand seeing 5 winners! And just as important, they’ve won 7 series VS teams in a row! That’s how you get to the playoffs… Ok… Today is my beautiful daughter’s birthday… Happy Birthday Dawn! Dawn is a kindergarten teacher, and ever since she was a young girl, the little kids just flocked to her… So, she picked the correct vocation, eh? When she was a little girl, I called her Boo Boo, then Dawnie boo, and then she grew up… I tried like hell to keep her from doing that… But it didn’t work… And now I’m hoping that Dawn’s daughter, my little d (Delaney Grace) never grows up! Dawn always takes the time to call me when I’m alone and see how I’m doing, or if I need anything. That’s my Dawnie boo! Foghat greets me this morning with their song: Take It Or Leave It…

Front and center… I wanted to remind everyone that the Pfennig Replies site crashed, and they haven’t been able to resurrect it yet, so if you respond to the Pfennig, I’ll not see it… and that’s why you haven’t’ received a response… it’s not a case of me just deleting them… I haven’t been getting them!

OK… That’s out of the way… Something strange happened on Friday… The dollar got sold! It was a good day for the currencies and metals… I sure would like to say that was the turnaround, but I get this feeling that it was a day of rest for the market participants that have driven the dollar to near the 97 level of the Dollar Index. I was zapped out most of Friday, so I had to look up what went on… And I found out that the dollar bugs were sent back into the wall boards by a better than expected CPI (consumer inflation) report from the Eurozone… CPI in July was 2.1%… So, all the stoplights have turned green for the European Central Bank (ECB) to begin to unwind their stimulus…

On top of the good CPI report (Good for the markets, no inflation is good with me!) The Eurozone Current Account Surplus widened to EUR 23.5 Billion! This report came with red lights flashing, warning the Eurozone that U.S. President Trump will be coming for some of that EUR 23.5 Billion surplus! And I’m being serious about that folks! The Trade War might have taken a bit of a break in the latter part of the week, but that won’t last long, and I truly expect the Trade War saber rattling will begin again as this week gets started…

Have you ever been to a port city? Or the Panama Canal? The reason I ask, is that if you have you would be very familiar with the company name MAERSK… It’s on just about every ship or container in the port or canal! Well the folks at MAERSK decided to throw their two cents into the comments about the Trade War… And they said that in their opinion, which to me carries a lot of weight, given their business, that the Trade War will hurt the U.S. economy the most. 

I thought long about this comment from MAERSK, and have to say that the U.S. is a country of spenders… But if prices rise too much, first we flock to Walmart, and if prices keep rising, we then stay home. I was doing some research this past weekend, and read a report that highlighted what I just wrote about Walmart…  That when things get hairy in the U.S. economy, Walmart sees increased sales, and when things are looking smooth, they see decreased sales… Interesting don’t you think?  So, keep an eye on Walmart, if the parking lots are filled to the brim… the economy is already well on its way to recessionville. 

I’ll let you all in on a little secret… come in close here so I don’t have to say it too loudly… Ready? Ok, here we go… The Bond guys don’t think much of the Trade War, and what it’s going to do to the economy… In case you haven’t been paying attention, the yield on the 10-year Treasury remains below 3%, at 2.86% this morning… Basically, as you look at this bond maturity, you have to see that the bond guys don’t believe the economy is going to be better than 2.86% can’t handle… think about that for a minute and then come back with questions… HA!

Well, Gold got off the canvas and dusted itself off to gain $10.90 on Friday! It was beginning to look as if Gold was going to stay down for the count last week, but on Friday, it pulled itself up, and the referee waived off the count… China must have thought that enough was enough, eh? Or maybe the Chinese really meant it when they said, “We’re not doing what we’re doing to the renminbi” Remember that one? I was laughing until my side hurt… But maybe they should have said, “We’re finished doing what we’re doing to the renminbi”

Gold is up another $4 in the early morning trading today, so hopefully it can put together consecutive days of gains, and not have Friday be a one and done… 

As I said above, the currencies rallied on Friday, the Big Dog, euro traded up from 1.1370 on Thursday to 1.1444 on Friday… There was a little profit taking in the overnight markets, or selling by the ECB, take your pick, either way the euro has backed off a bit in the overnight markets… 

The Aussie and New Zealand dollars both saw nice recoveries on Friday that held through the overnight trading last night.  On Friday, the Peoples Bank of China (PBOC) allowed a nice appreciation in the renminbi, and again last night… So that makes sense that the A$ and kiwi were on the rally tracks given their biggest customer stopped with the Armageddon actions with their currency…  

It’s going to be a week chock-full-o-data and stuff from around the world… Like Japan will print their latest CPI… The Eurozone will print their latest PMI’s… Canada will chime in with a data print of their own with June Retail Sales (seems a little stale don’t you agree?) and New Zealand will print their 2nd QTR Retail Sales on Tuesday, IWed for us)… there are lots of other prints from the countries around the world taking place this week, but these are the major ones…

Last Friday, Russia printed two very interesting pieces of data. I say that because these data reports from Russia continue to amaze me with how resilient they are in the face of economic sanctions on just about anything that’s Russian. Retail Sales for july were up 2.5%… pretty darn good, eh? And Russian GDP for July Year on year, was up 1.8% from 1.1% the previous month. The Soccer or FIFA World Cup games surely had a positive effect on the Russian economy this summer I would think, so now after the games are over, what happens? And that’s what I’ll be watching… You can bet your sweet bippie on that!

So, Since we’re talking about economic data… The U.S. Data Cupboard is so worn out from last week’s deluge of data, that it’s taking Monday and Tuesday off this week! Yes, no data to speak of… Only the Fed’s Meeting Minutes from the last meeting will print tomorrow. In fact, we won’t see a piece of real economic data until Friday, when Durable and Capital Goods Orders print for July…

Whenever we have a week such as the one we’re about to have here in the U.S. with little or no data for a number of days, the dollar usually gets lost in the shuffle… Oh, but wait! I almost completely forgot, the Fed’s Jackson Hole Boondoggle begins this week! OMG, what was I thinking? Most years, this boondoggle of finance ministers, central bank govs. And others, don’t bring about much movement in the markets… But a few years ago, St. Louis Fed President, James Bullard broke the news about another round of QE was needed… And well, that, my friends was a piece of market making news!

So… I’m not of the opinion that much will shake from the trees at this meeting, but we never know, now do we?

To Recap…  The currencies and metals rallied on Friday, after some strong economic prints from around the world, sending the dollar bugs back to the wall boards… It looks like there was either some profit taking or more  ECB selling of the euro in the overnight markets, but the Big Dog has held a good piece of its gains on Friday…  Gold gained $10.90 on Friday, and is up $4 in the early morning trading today… And Chuck let’s his dear Pfennig Readers in on a little secret… 

For What It’s Worth…  With the U.S. ratcheting up the debt machine and making it have steam coming out of it from working so much, the issuance of Treasuries is astronomical… But there’s a problem… Who’s buying them? The Fed… no… Russia… no… China… maybe… Japan… no… Uh-oh… Well this article talks about that and more and can be found here: https://wolfstreet.com/2018/08/15/who-bought-the-1-36-trillion-of-new-us-national-debt-over-the-past-12-months/ 

Or, here’s your snippet: ““Official” foreign investors – this would be central banks, governments, etc. – and private-sector foreign investors held $6.21 trillion of US Treasury Securities at the end of June, up by $61 billion from a year earlier, according to the Treasury Department’s TIC data released Wednesday afternoon.

But over the same period, the US gross national debt, fired up by a stupendous spending binge, soared by a breath-taking $1.36 trillion. So who bought this $1.36 trillion in new debt?

The largest holder of marketable Treasury securities remains China, whose holdings in June fell by $4.4 billion from May to $1.18 trillion, within the same range since August 2017, despite escalating threats and counter-threats over trade.

But Japan has been systematically reducing its Treasury holdings. They’d peaked at the end of 2014 at $1.24 trillion. In June, its holdings dropped by $18.4 billion from May, to $1.03 trillion, the lowest since October 2011:”

Chuck again… I’ve said this before that the Fed was like Steve McCrocskey from the original Airplane movie… The Fed picked the wrong time to begin to unwind their balance sheet! 

Currencies today 8/20/18… American Style: A$ .7310, kiwi .6618, C$ .7650, euro 1.1415, sterling 1.2742, Swiss $1.0042, European Style; rand 14.5065, krone 8.4605, SEK 9.1834, forint 283.81, zloty 3.7683, koruna 22.5306, RUB 66.99, yen 110.65, sing 1.3717, HKD 7.8495, INR 69.74, China 6.8752, peso 18.89, BRL 3.9100, Dollar Index 96.30, Oil $65.88, 10-year 2.86%, Silver $14.77, Platinum $779.40, Palladium $917.29, and Gold… $1.188.09

That’s it for today…  I can’t believe my daughter is turning… No, I won’t tell you that number, I know better than that… Let’s just say, she’s making me feel old! I’m told by my beautiful bride all the time that I am old… So, that settles that!  I started sending out the invites to the Annual Butler Labor Day BBQ this past week…  I love that weekend, the last of the summer, the start of college football, a gathering of friends and family… And the Big Green Egg working overtime! I’ve done this Labor Day BBQ for almost 20 years now… it’s a Big Deal to me!  Cardinals go to LA tonight I won’t be catching that game on TV, for it will come on at my bed time! UGH! And with that the Beatles take us to the finish line today with their song: I Feel Fine…  I hope you have a Marvelous Monday, and Be Good To Yourself!

Chuck Butler