Riksbank Goes Deep!
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In This Issue.

* Stevens deep sixes the A$..

* Riksbank does the same to the krona .

* Dollar celebrates Independence Day with a rally! .

* RBI can't keep their hands out of the cookie jar!.

And Now. Today's A Pfennig For Your Thoughts.

Riksbank Goes Deep! .

Good Day! . And a Tub Thumpin' Thursday to you! The Day before our Independence Day. Which as the Big Boss, Frank Trotter reminded me of yesterday was actually July 2nd. He even sent me a cartoon that is a conversation between two people and goes like this: "Although we celebrate on the 4th, the Continental Congress actually voted to break away from England on July second. So, today is the True anniversary of people getting tired of paying taxes to a government that was out of touch with them, to pay for wars to secure commerce." It's funny, but you have to have a warped sense of humor, right? Because, here we are more than 238 years ago now, and we're still in the same boat as The Continental Congress was.

In 1972, the band Chicago, wrote and recorded a song called: Dialogue. the song is about two guys having a conversation about what's happening in the world. And if you didn't know the song was from 1972, you would think they were talking about things happening today! Crazy, eh? But that's what happens folks. we fail to correct things and they come back to bite us in the ask me no more questions, I'll tell you. HA! Had you going there didn't I? You thought I was going to go rogue on you, and begin speaking in tongues!

Oh well, tomorrow is a day to have a sense of pride, in our country, and I'm not one to throw cold water on that! From time to time I look in the archives for things I said in the past to see how things worked out. A year ago on July 3rd, I said that the dollar was celebrating Independence Day with a rally. And guess what's going on today? That's right! Another dollar rally the day before Independence Day. For those of you who read the Pfennig at the Blog site: www.dailypfennig.com you know that each day there's a different picture to greet you that most times has something to do with that day's main story. A year ago, I found a picture on the internet of fireworks going off in the sky, that looked Tre' cool and asked our social network people to add it. A year later and it's still not added! UGH! So, if you go to the Blog site, imagine that there's a picture of fireworks! Yes, imagine, there's fireworks, it isn't hard to do.

So, there's a dollar rally going on ahead of the 3 & 1/2-day Holiday Weekend in the U.S. I added that 1/2-day because the markets will close early today, and by the time the boys and girls in London head to the pubs, and subs, things will be getting tied in a bow here in the U.S. Other than that, there's just this little ditty in the U.S. to deal with before the NYC boys and girls head to the Hamptons, and that is the JOBS JAMBOREE! Did you see the surprise upside move in the ADP Employment change report yesterday? The markets were expected 205,000 jobs reported by ADP, the payroll people. Instead, ADP reported 281,000 for June! WOW! That's a HUGE difference from the expectations! So, who makes those expectations? Economists. Go figure!

The U.S. Treasury market got whacked on the ADP report, and the 10-year added 8 basis points to its yield. I know that might not sound like a lot, but when you compute the price of the bond, it fell from 99.565 to 98.876. Then you have to factor in that the price is per 1,000 bond, and bonds are bought in very large sizes. So, what I'm saying here is that Treasuries got whacked on the ADP report, take my word on that! And it was the ADP report that got the dollar on the rally tracks, for the markets believe that the ADP report gives us a good indication of what the Jobs Jamboree will look like. This is all about rate forecasts folks. for the markets believe that a hot jobs market could lead to rates being raised faster than anticipated.. That's bad for bonds, and would help the dollar to stop the bleeding. Would higher rates save the dollar? Not in my book they won't. for my reason, simply go to this website and check out the numbers. http://www.usdebtclock.org/index.html

There's enough data in the U.S. Data Cupboard today to choke a horse (no worries no animals will get hurt here!) . And then sprinkle in the Central Bank meetings in the Eurozone and Sweden, and this morning will be chock-full-o-volatility. If I were looking to buy or sell today, I think I would just pack it up and head for the Hamptons, because today could very well, end up being a day of days. Right now, the dollar is swinging the rally hammer and not taking any prisoners. The worst performer of the night is the Aussie dollar (A$).. So, remember earlier in the week, when I told you I was worried about the A$ having gone too far, too fast? I really thought the Reserve Bank of Australia (RBA) would do dirty deeds done dirt cheap on the A$... And RBA Gov. Stevens had no problems doing the dirty deeds done dirt cheap! .(That's got to be a first for me. An AC/DC reference in the Pfennig! ) on the A$ last night saying that the A$ was "overvalued" by most measures. He then went on to say that, "Investors are under-estimating the probability of a significant fall in the A$ at some point." Uh-Oh.

So, seeing what Stevens said, you can now understand why the A$ is off by more than ¾ of a cent this morning. There is obviously a very big disconnect between what the markets believe the value of the A$ is, and what the RBA thinks. Back in the day, I would have put my money on the markets winning out, as I used to say that the markets have deeper pockets than any Central Bank. But these days, the markets don't fight Central Banks any longer, they've become big sissies!

July 4 gas prices here in the U.S. are at 6-year high. So, we've got that going for us! Funny, well, not really funny HA-HA, but funny in the twist of things, but the price of Oil is the lowest it has been in a couple of weeks this morning. If it's not rising healthcare costs, or rising tuitions, or rising movie tickets, and so on, it's rising gas prices! UGH!

Well, BIG news from China overnight. China's foreign exchange regulator announced that banks are free to set exchange rates for the renminbi / yuan against U.S. dollar in transactions with customers. The banks will use market demand to set the exchange rates. I say this is BIG news because it's just another in the long line of baby steps that China has taken to prepare their currency for Bigger and Better things! Banks, previously, had to price these exchanges within 3% in either direction of the Chinese Central Bank midpoint on a given day.

Taking this even deeper, I see this as something that just might lead to the renminbi / yuan free floating. You see, an analyst at a Chinese Bank said that this "liberalization of the retail market implies that the Peoples Bank of China (PBOC) believes that the currency has reached equilibrium". Hearing that, I immediately thought that if the PBOC thinks that, then they should be ready to gradually free the renminbi / yuan exchange rate without speculators making the whole process volatile! For if the currency is thought to be at its equalization level, there's no speculating to do!

And on a night when the PBOC could have taken the opportunity to really boost the renminbi / yuan in an effort to show their support for the currency, they weakened the currency . go figure.

This just in. Sweden's Riksbank announced that they were cutting their main interest rate and not by the customary 25 Basis Points (1/4%). No! The Riksbank decided that they needed to cut rates by 50 Basis Points (1/2%). What, What? That's right! 50 Basis Points! Off of a rate that really didn't have much to offer to begin with! So, now Sweden has joined the ZIRP crowd! Recall that ZIRP stands for: Zero Interest Rate Policy. I used to think that the Riksbank was what I would call a "prudent central bank". But it appears that they've signed up for the war. The Currencies War. UGH! And if a baseball announcer was announcing the rate cut, they would say, "The Riksbank swings, and hits a high fly ball that just keeps carrying and they have gone deep!" Yes, they have they've gone deep folks. nowhere to go now but up.

The Indian rupee, which had been ready to book a weekly gain VS the dollar this week, got whacked overnight and in the morning session, as the reports had the Indian Central Bank, the Reserve Bank of India (RBI) (recall the coolest Central Bank abbreviation.. RBI!) intervening to help exporters. That kind of stuff just ticks me off to no end, folks.. Memo to the RBI. LET THE MARKETS DETERMINE THE VALUE OF THE CURRENCY AND KEEP YOUR DARNED HANDS OUT OF THE COOKIE JAR! How can the markets take you seriously, when you do stuff like that? I shake my head in disgust.

The euro is hanging tough against all this dollar strength this morning, and the European Central Bank (ECB) is meeting as I write. As I said previously in the Pfennig this week, I don't expect the ECB to announce any additional policy measures at this meeting, as they dug deep into their quiver last month, and should wait a bit to see how all that works out. But then that's just my opinion and I could be wrong, but don't you agree that it would prudent for the ECB to wait and see what happens before drawing another arrow from their policy measures quiver?

Gold is also getting sold this morning, down $8 at this point of the proceedings this morning.. Silver, Platinum and Palladium are all falling in line with Gold this morning, making it a total dollar rally day! I have a treat for you in the FWIW section today. It's my fave writer, Grant Williams on Gold. you won't want to miss that!

So, I talked a bit about the Jobs Jamboree above, and there's really nothing more to say about it, given my total dislike for the BLS and their hedonic adjustments. But the other stuff in the Data Cupboard this morning include: The May Trade Deficit, The Avg. Weekly Initial Jobless Claims, the non-manufacturing (services) component of the ISM, and a whole host of jobs related data, like the participation rate, etc.

Yesterday in the Data Cupboard, May Factory Orders were worse than expected, printing a negative -.5% (-.3% was expected). So, in May, we had negative readings from Factory Orders, Durable Goods Orders, and some others that I can't recall right now. But not to worry, this is just noise. like the noise that Janet Yellen hears when people talk about inflation.

Well, before I head to the Big Finish today, I have to retract something I attributed to Richard Russell yesterday. Actually the quote about hyperinflation by the end of 2014, was actually Richard quoting John Williams. I knew that, and totally drew a brain freeze when putting it the Pfennig. So I apologize to everyone, Richard, John, and anyone else that was misled into believing that Richard Russell said those things. I can't believe I messed that up, given that I even said, that I had never heard Richard Russell that gloom and doom before. UGH!

For What It's Worth. This is a real treat as far as I'm concerned and hope you feel the same. Grant Williams talking about Gold. I won't take up any more time and space here, let's get to what Grant has to say!

"At this point it's all a matter of confidence returning in the gold market. We've seen the mining stocks lead to the upside. So we've seen some really good outperformance by the mining equities, which you would expect. They are showing real good signs of follow through because of some serious buying coming into the sector....

This recovery has been a long time coming. People may now be starting to get some confidence and a sense that things are turning around here. Yes, we have seen some false starts, but this one looks like it may actually be the real turn.

Gold may not go screaming straight back to $1,900 from here, but if we hold $1,300, and we hold it strongly, and then we get through $1,350 and hold that level, you are going to see an awful lot of people start to look at gold from the long side and that's when the serious fireworks are going to start.

What we've seen on the physical side of things is this tremendous drain of metals going from West to East. It's going from the U.K., through Switzerland, and eventually to Asia, and in extremely large quantities to China. I gave a presentation on this a little while ago which basically echoes the plot of the James Bond book Goldfinger.

What was once seen as a fictional tale is now starting to look like it's actually playing out in real life. And with all this gold disappearing into such strong hands, we are really going to see some sharp moves to the upside. This will take place as people desperately try to get their hands on gold and find the people owning it are not sellers, certainly not for at least several hundred dollars from current levels. - Grant Williams. from an interview on kingworld.com

Chuck again. Yes, I'm waiting and lots of Gold holders are waiting. patiently I might add. because true believers don't panic and sell into weakness!

To recap. Tomorrow is the July 4th observance of Independence Day, although Frank points out our Independence Day is really July 2nd.. And for a second year in a row, the day before the 4th, sees the dollar rally. The dollar rally is strong, and taking no prisoners. RBA Gov. Stevens deep sixed the A$ overnight with words, and the Riksbank deep sixed the krona with a 50 Basis Point rate cut this morning. The U.S. ADP report was surprisingly strong at +281,000 in June, which the markets believe will lead to a very strong Jobs Jamboree # this morning. And that has the dollar swinging the rally hammer this morning.

Currencies today 7/3/14. American Style: A$ .9380, kiwi .8770, C$ .9390, euro 1.3650, sterling 1.7130, Swiss $1.1235, . European Style: rand 10.7675, krone 6.2105, SEK 6.8335, forint 227.85, zloty 3.0375, koruna 20.0980, RUB 34.20, yen 101.90, sing 1.2465, HKD 7.7510, INR 59.74, China 6.1581, pesos 12.99, BRL 2.2220, Dollar Index 80.04, Oil $104.09, 10-year 2.63%, Silver $21, Platinum $1,499.38, Palladium $854, and Gold. $1,318.69

That's it for today. This just in. The ECB did as I said they would, so nothing gained, nothing lost here. Well, here we are heading to the 4th of July Holiday. A day when every American should have the right to shoot off fireworks! That's my story and I'm sticking to it! I hope you enjoy your Holiday weekend. Get outside, and fire up the smoker or grill, play some washers, horseshoes, bean bags, bocce ball, whatever, and have some fun with family and friends! The weather here is amazingly nice! I don't know what we did to deserve this nice weather with little humidity, but I wish we did it more! The folks on the East Coast will have to batten down the hatches on Hurricane Arthur. Be careful, and heed the warnings! I was singing along to my fave Temptations song: The way you do the things you do, this morning. If that song can't get you to sing along, you're an old bump on a log! HA! Thanks to members of our legal team, Barry and Valerie, for spending some time with us this week. The Guess Who is playing: No time left for you on the IPod, and that's about where I get off this bus! I thank you for reading the Pfennig. And I hope you have a Tub Thumpin' Thursday, followed by a grand Holiday Weekend!

Chuck Butler


EverBank World Markets



Posted 07-03-2014 11:37 AM by Chuck Butler
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