Tag Archives: #shutdown

Doesn’t Make Sense

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In England they call it the pence
But now it just doesn’t make sense
While pennies will still
Live in the cash till
We’ll speak of them in the past tense
 
And as to the shutdown, Trump signed
The CR to leave it behind
While this is good news
It won’t change the views
Of those who are not Trump aligned

 

For 230 years, the penny was a staple of the US currency system with more than 300 billion currently in circulation.  Of course, I don’t know that I would call them in circulation as they are generally sitting next to the cashier in a dish to be used since most folks don’t want to deal with them, or in a jar in the bedroom where they remain as people cannot throw out something valuable, but don’t want to bother with them either.  Let’s say they are in existence.  But given the rise in the price of copper, as well as the rise in general inflation, the Treasury estimates that it costs about 3.7 cents to mint each one, obviously a losing trade.  While they will remain legal tender, be prepared for everything to be rounded to the nearest nickel soon.  I guess there is no better description of inflation than the fact that the penny has outlived its useful life.  An interesting tidbit, the last coin discontinued by the Mint was the half-penny, which ended in 1857.

On to more important things, last night, President Trump signed the CR and ended the government shutdown.  It strikes me this was a whole lot of politics with no substantive changes to anything.  But it, too, is now history and we move on.  It was interesting to me that there was not a broad “sell the news” outcome as the equity rally early in the week appeared to be based on the prospects that this would occur.  Perhaps that will be today’s trade, although the futures at this hour (7:00) are little changed.  But no matter, there appear to be an increasing number of cracks in the façade of ever higher asset prices.  While the DJIA did set another record yesterday, the NASDAQ slipped.  I don’t foresee a smooth path ahead for risk assets, especially with havens continuing to perform well.

The last thing of note this morning was Chinese monetary data which was released last night.  Remember yesterday’s story about the ‘phantom’ loans?  Well, apparently, that has not been enough to keep the flywheel turning on the mainland as New Bank Loans fell to CNY220 billion, down more than CNY 1 trillion from September and well below last year’s October data of CNY 500 billion as per the chart below from tradingecomomics.com.  There is huge seasonality in this data, with every January showing massive growth, but looking at the past three years of data, my eye tells me things are slowing regularly despite their alleged 5% GDP growth.

Despite the 4th Plenum declaring they would be focusing on increasing domestic economic activity, President Xi continues to have a difficult time growing the economy organically.  The ongoing GDP targets warp investment decisions which result in overproduction of goods and massive infrastructure spending which drives up debt issuance.  The problem with this cycle is the lack of domestic consumption means that the returns on that infrastructure are terrible, likely negative, and so while building the stuff increases GDP, having it sit there idle doesn’t do anything once its built.  For now, investors continue to believe in the growth story, and I’m confident that Xi Jinping will never allow economic data to be released that would counter that narrative, but trouble is brewing there in my mind.  Just not today!

And that’s really the news this morning, at least from what I’ve seen, so let’s look at markets overnight.  The official end of the government shutdown was widely lauded in Asia with Tokyo (+0.4%), HK (+0.6%) and China (+1.2%) all closing higher in the session.  Korea (+0.5%) also rallied but elsewhere in Asia, things were less satisfactory with Australia, New Zealand and Taiwan all under modest pressure while India was unchanged.  

In Europe, the FTSE 100 (-0.6%) is slipping after weaker than expected GDP data with the Y/Y number slipping to 1.1% while IP fell -2.5%.  It is difficult to look at the chart of GDP below and get the sense that the UK economy is in very good shape.

Source: tradingeconomics.com

All this is with the backdrop of the Starmer government getting set to release its latest budget in just under two weeks and expectations they are going to be raising income taxes yet again as revenues cannot keep up with their welfare state promises.  The problem they have is the pound is not the global reserve currency nor are Gilts the global reserve asset, so it appears the Gilt vigilantes are alive and well although the bond vigilantes remain in hibernation.  As to the continent, the DAX (-0.6%) is also suffering despite no data releases while the CAC (+0.4%) is managing to rally.  The rest of the bourses are generally little changed with all eyes focused on the UK to see how they handle their problems.  Of course, virtually every country on the continent has the same problems!

In the bond market, after sliding -4bps yesterday, 10-year Treasury yields have backed up 2bps this morning.  we are seeing similar price action on the continent with virtually all sovereign debt showing rises of between 1bp (France) and 3bps (Germany, Netherlands), once again mostly tracking the Treasury market.

In the commodity space, oil (+0.7%) is bouncing after a disastrous session yesterday where it fell nearly $2/bbl on news that the IEA increased its supply forecasts (2.5 MM bbl/day) significantly more than its demand forecasts (780K bbl/day).  Certainly, this is aligned with my longer-term bearish view on oil and a look at the chart below shows the trend over the past year remains firmly downward.  Do not be surprised if we get to $50/bbl next year.

Source: tradingeconomics.com

Turning to the metals markets, the rally continues across base and precious this morning and this steady climb after a sharp pullback a few weeks ago seems to have real legs.  This morning, we see gold (+1.0%), silver (+1.3% and pushing its recent ATH), copper (+0.9% despite the loss of penny demand) and platinum (+1.2%).  When governments run it hot, precious metals benefit.

Finally, the dollar is softer this morning with the DXY (-0.25%) slipping back to the middle of its narrowing trading range as per the below chart.

Source: tradingeconomics.com

The weakness is universal, though with G10 and EMG currencies stronger across the board.  ZAR (+0.6%) is the leader today as the dollar has fallen back below 17.00 for the first time since January 2023 as it continues to benefit from the rally in gold and platinum.

Source: tradingeconomics.com

It strikes me that if one were so inclined to play a long-term trend in currencies, long ZAR vs. short NOK might be a very interesting way to play the dichotomy between oil’s ongoing decline and gold’s ongoing rally.  But everything is firmer vs. the dollar with the pound (+0.3%), euro (+0.2%) and AUD (+0.3%) highlighting the G10.  In the EMG bloc, CLP (+0.5%) is benefitting from copper’s rally while the CE4 are all higher by 0.3% to 0.4%, mirroring the euro’s rise.  Even CNY (+0.25%) is higher despite the weak monetary data.  Not to be outdone, both MXN (+0.2%) and BRL (+0.3%) are in thrall to a weaker dollar.

While the government is open now, given the closure, no data has been collected so it is not yet clear when we will be seeing the next set of numbers.  Yesterday’s Fedspeak showed caution the watchword regarding more cuts which has led the futures market to reduce the probability of a December cut to just 54% this morning and a definite change in flavor for the curve overall.  It is somewhat surprising that the dollar is not performing better given this adjustment in views. 

Equity prices feel extended and the fear and greed index continues to sit in extreme fear despite the seemingly daily record highs.  I am uncomfortable with stocks overall here and believe they are due for a reckoning, or at least a correction.  But metals have nowhere to go but up.

Good luck

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Quelling the Strains

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The government shutdown remains
In place, as the House is at pains
To summon the will
For them to fulfill
Their mandate, while quelling the strains
 
Meanwhile, banks in China are lending
Out cash, though in fact, they’re pretending
But quotas from Xi
Mean he wants to see
More loans to encourage more spending

 

While the Senate has passed a CR that will fund government completely through January 30th and includes full year funding for Veterans Affairs, the Department of Agriculture and legislative activities (they paid themselves), with the rest yet to be completed, the House is meeting today to vote on the measure, at which point, assuming it passes, it will then be sent to President Trump for his signature.  It should be completed today, but this being Congress, with numerous members seeking to preen to their TikTok viewers, until it is done, we cannot be certain.

Now, get ready to hear a lot about how much the shutdown cost as we will get many estimates from various economists and analysts, and you can be sure that they will reflect the political bias of the estimator.  I have seen estimates ranging from 0.2% of GDP to 0.6% of GDP for the quarter, with appropriate annualizations.  My personal view is the damage will be lesser, not greater, as all federal employees will be receiving back wages and most spending will have been delayed rather than destroyed.  We shall see.

Regarding the US economy, as we missed the first reading of Q3 GDP due to the shutdown, it seems we will be getting our first look at the end of this month.  Now, the Atlanta Fed did not stop working and their GDPNow estimate for Q3 remains quite robust at 4.0% as per the below chart from their website, atlantafed.org, but the damage, of course, will fall in Q4, so we won’t really know until sometime in January with the first look at that data.

However, it is important to understand that an increasing number of analysts are explaining that the economy is slowing rapidly.  Their latest ‘proof’ is from yesterday’s ADP weekly data, an entirely new statistic with a track record of exactly…2 weeks, but which showed that 11,250 jobs were lost last week.  I am no econometrician (thankfully), but it seems to me that building your case on a statistic with 2 data points is weak sauce.  Ultimately, I think the main reason that there is so much uncertainty amongst analysts is the concept of the K-shaped economy, where the wealthy are doing fine, basking in the glow of their equity returns, while those less well-off are struggling with ongoing inflation and a less robust job market.

In fact, the Fed is having the same problem, looking at the economy with no consistency as there appears to be a pretty significant rift between the hawks and doves right now.  We got further proof of this (as if the two dissents at the last meeting, one for a bigger cut and one for no move wasn’t enough proof) in this morning’s WSJ where the Fed whisperer, Nick Timiraos, published an article explaining exactly that.  There are two camps, one focused on weakening employment and wanting to cut and one still focused on inflation (allegedly) and wanting to pause.  The Fed funds futures market has reduced the probability of a December cut to 65% as of this morning, but is a lock for that cut by January with a small probability of two more cuts by then.

Nothing has changed my view that they cut next month because I believe that they are essentially unconcerned about inflation at this point, believing 3% is close enough to 2% for government work, and remain entirely focused on the job market.

Turning to the most fascinating international story, it appears that Chinese banks have started to make “phantom” loans, or at least that’s what they are being called, as President Xi is very keen to goose economic activity and the large, state-owned banks have quotas to reach.  So, apparently, what they are doing is going to their best customers, begging them to take out a loan they don’t need, and then having the loans repaid within one month.  The banks are even going so far as to pay the interest so there is no actual impact on anything other than bank loan volume.  Of course, that is the quota being met, so I imagine this will continue.

But it makes you wonder, exactly how bad are things in China that banks are resorting to these games?  Perusing the Chinese data from the past month, things are clearly slowing as per the below from tradingeconomics.com:

Too, the PMI data was soft and Foreign Direct Investment is collapsing, falling -10.4% in September. Again, if you want to understand why President Xi was willing to agree a deal with President Trump, the answer is that the Chinese economy remains under intense pressure, and while the currency doesn’t reflect anything about the economy, the fact that Chinese yields are amongst the lowest in the world is a strong signal that things are not great.

Ok, let’s turn to the overnight activity and see how things behaved.  While the US had a mixed performance (NASDAQ fell although the other indices rallied), we continue to see more positive than negative outcomes in Asia on the back of the ongoing tech rally and the end of the shutdown.  Thus, Japan (+0.4%), HK (+0.8%), Korea (+1.1%), India (+0.7% despite a terrorist attack) and Taiwan (+0.6%) all continued their recent rallies.  China (-0.1%) had a much less impressive day. But these markets continue to benefit from the tech story, and I expect that to continue if the tech story continues to be positive.  As to Europe, bourses there are also benefitting from the imminent end of the US shutdown with gains across the board on the continent (DAX +1.2%, CAC +1.1%, IBEX +1.1%) although the UK (-0.15%) is struggling as concerns grow over the nation’s ability to come up with a viable budget that pays for services without raising taxes to a crippling rate.  As to US futures this morning, at this hour (7:30), they are nicely higher, 0.5% or more.

In the bond market, Treasury yields have slipped -4bps, ostensibly on that weak ADP number which has more investors expecting a much weaker economy here.  Europe though, has seen yields tick higher by 1bp across the board, with the UK the exception (+3bps) as concerns over UK finances continue apace.

In the commodity markets, oil (-1.1%) which rallied yesterday on growing concerns over the latest US sanctions on Lukoil and Rosneft, have given back those gains and are once again hovering around $60/bbl.  The IEA released their report on the future of energy use, specifically fossil fuels, and in another sign the climate crisis is ending (or at least that it is no longer a concern), they explained that fossil fuel use would now peak in 2050 under current policies, rather than prior to the end of this decade under stated policies.  The FT was kind enough to put together a little graphic showing the two different views, but we all know that stated policies are wishful thinking.

In a nutshell, more oil demand will drive more oil supply, count on it!  Turning to metals, the rally continues this morning with gold (+0.2%) and silver (+1.1%) pushing back toward the highs seen on October 20th.  I strongly believe these markets will continue to rally as the ‘run it hot’ philosophy will be enacted in as many places around the world as can get away with it.  

Finally, the dollar is a touch firmer this morning, with DXY (+0.1%) on the back of continued weakness in the pound (-0.3%) and the yen (-0.4%).  Elsewhere, the picture is mixed with the euro little changed while the rand (+0.5%) continues to benefit from the gold rally.  Otherwise, the dollar remains a back burner issue for most investors right now, although I have read that people are talking about the carry trade again, funding investments with short yen positions.  Certainly, the yen has been quite weak overall as evidenced by its trend over the past six months below.

Source: tradingeconomics.com

There is no data this morning although we will get bombarded with five Fed speakers, three of whom are confirmed doves (Miran, Williams and Waller) while the other two seem more middle of the road (Bostic, Paulson).  At this point, there is no consensus on the economy’s strength or direction and that is evident at the Fed as well as in the analyst community.  The only consensus seems to be that stocks and gold should both continue to rally.  As to the buck, what’s not to like?

Good luck

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Like a Fable

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It seems there’s a deal on the table
To end the shut down and enable
The chattering classes
To force feed the masses
A story that’s quite like a fable
 
Both sides will claim they have achieved
Their goals, though they were ill-conceived
But markets will love
The outcome above
All else, and we’ll all be relieved

 

While the shutdown is not technically over as the House of Representatives need to reconvene (they have been out of session since September 19th when they passed the continuing resolution) and adjust the bill so that it matches the one the Senate agreed last night and can be voted on in the House, it certainly appears that the momentum, plus President Trump’s imprimatur, is going to get it completed sometime this week. 

The nature of the deal is unimportant for our purposes here and both sides will continue to claim that they were in the right side of history, but the essence is that there appeared to be some movement on health care funding so, hurray!

As you can see in the chart below, while the story broke late yesterday afternoon and futures responded on the open in the evening session, the reality is the market sniffed out something was coming around noon on Friday.  In fact, the S&P 500 has rallied 2.4% since noon Friday.

Source: tradingeconomics.com

So, everything is now right with the world, right?  After all, this has been the major topic of conversation, not just by the talking heads on TV, but also in markets as analysts were trying to determine how much damage the shutdown was doing to the economy.  While I have no doubt that there were many people who felt the impact, my take is there were many, many more who felt nothing.  After all, the two main features were air travel and then SNAP benefits.  Let’s face it, on average (according to Grok) about 2.9 million people board airplanes in the US, well less than 1% of the population, although SNAP benefits, remarkably, go to 42 million people.  However, those have only been impacted for the past week, not the entire shutdown.

I’m not trying to make light of the inconveniences that occurred, just point out that from a macroeconomic perspective, despite the fact that the shutdown lasted 6 weeks, it probably didn’t have much of an impact on the statistics as all the money that wasn’t spent last month will be spent next month.  Different analyst estimates claim it will reduce Q4 GDP by between 0.2% and 0.5% with a concurrent impact on the annual result.  I am willing to wager it is much less.  However, it appears it will have ended by the end of the week and so markets are back to focusing on other things like AI, unemployment and QE.

Now, those three things are clearly important to markets, but I don’t think there is anything new to discuss there today.  Rather, I would like to focus on two other issues, one more immediate and one down the road, which may impact the way things evolve going forward.

In the near term, as winter approaches, meteorologists are forecasting a much colder winter in the Northern Hemisphere across both North America and Europe, something that is going to have a direct impact on NatGas.  Bloomberg had a long article on the topic this morning with the upshot being that the Polar Vortex may break further south early this year and bring a lot of cold weather along for the ride.  This is clearly not new news to the NatGas market, as evidenced by the fact that its price has exploded (no pun intended) higher by 43% in the past month!

Source: tradingeconomics.com

While oil prices have remained stuck in a narrow range, trading either side of $60/bbl for the past 6 weeks amid a longer-term drift lower as you can see in the below chart, oil is only utilized by ~4% of homeowners for heating with 46% using NatGas.

Source: tradingeconomics.com

Ultimately, I suspect that we are going to see this feed through to inflation as not only are there the direct costs of heating homes, but NatGas is also the major source of generating electricity, with 43% of the nation’s electricity using that as its source.  We have already seen electricity prices rise pretty sharply over the past months (I’m sure you have all felt that pain) and if NatGas prices continue to climb, that will continue.  Remember, the current price ~$4.45/MMBtu is nowhere near significant highs like those seen just 3 years ago when it traded as high as $10/MMBtu.  With all this price pressure, will the Fed continue down their path of rate cuts?  Alas, I believe they will, but that doesn’t make our lives any better.

Which takes me to the second, longer term issue I wanted to mention, European legislation that is seeking to effectively outlaw the utilization of cash euros.  This substack article regarding recent Eurozone legislation is eye-opening as the ECB and Europe try to combat the coming irrelevance of the euro.  For everyone who either lives in Europe or does business there, I cannot recommend reading this highly enough.  There are many changes occurring in financial architecture, and by extension financial markets.  Keep informed!

Ok, enough of that, let’s see how markets have responded to the Senate deal.  Apparently, US politics matters to the entire global equity market.  Green is today’s color with Japan (+1.25%), HK (+1.55%) and China (+0.35%) all performing well, although not as well as Korea (+3.0%) which really had a good session.  Pretty much all the other regional markets were also higher.  In Europe, the deal has everyone excited as well with gains across the board (Germany +1.8%, France +1.4%, Spain +1.4%, UK +1.0%).  As to US futures, at this hour (7:45) they are higher by about 1% across the board.

I guess with that much excitement about more government spending, we cannot be surprised the yields have edged higher.  This morning Treasury yields are up by 3bps, which is what we saw from JGB markets last night as well, although European sovereign yields are little changed on the day.  I suspect, though, if equities continue to rally, we will see yields there edge higher.

In the commodity space, oil (+0.5%) continues to trade in its recent range.  The most interesting thing I saw here was that the IEA is set to come out with their latest annual assessment of the oil market and for the first time in more than a decade they are not going to claim that peak fossil fuel demand is here or coming soon.  The climate grift is truly breaking down.  But the commodity story of the day is precious metals which are massively higher (Au +2.5%, Ag +3.3%, Pt +2.6%) with copper (+1.6%) coming along for the ride.  The narrative here is that with the government shutdown due to end soon, President Trump talking about $2000 tariff rebate checks and the Fed likely to cut rates in December (65% probability), debasement is with us and metals is the place to be!

Interestingly, the dollar is not suffering much at all despite the precious metals story.  While AUD (+0.6%), ZAR (+0.6%) and NOK (+0.6%) are all stronger on the commodity story, the euro is unchanged, JPY (-0.4%) continues to decline and the rest of the G10 is not doing enough to matter.  In truth, if I look across the board, there are more currencies strengthening than weakening vs. the greenback, but overall, at least per the DXY, the dollar is little changed.

There is still no data at this point, although it will start up again when the government gets back to work.  Actually, there has been much talk of the weakness in Consumer sentiment based on Friday’s Michigan Index which fell to 50.3, the second lowest in the history of the series with several subindices weakening substantially.  However, that was before the news about the end of the shutdown, so my take is people will regain confidence soon.  As well, we hear from 9 Fed speakers this week, with 5 of them on Wednesday!  Both dissenters from the October meeting will speak, so perhaps things have changed in their eyes, but I doubt it.

At this point, all is right with the world as investors anticipate the US government getting back to work while the Fed will continue to support markets by easing policy further.  In truth, the dollar should not benefit here, but I have a feeling that any weakness will be short-lived at best.  Longer term, I continue to believe the dollar is the place to be.

Good luck

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Never Sold

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The news of the day is that gold
Is actively bought, never sold
The Four Thousand level
Led some folks to revel
And drew many more to the fold
 
But weirdly, the dollar keeps rising
Which based on the past is surprising
The problems in France
And Sanae’s stance
Have been, for the buck, energizing

 

A month ago, many Wall Street analysts came out with forecasts that gold could trade as high as $4000/oz by mid 2026 as they reluctantly jumped on the bandwagon.  But, by many accounts, although my charts don’t show it, the barbarous relic’s futures contract traded a bit more than 120 lots at $4000.10 last night, nine months earlier than those forecasts.

Source: Bloomberg.com

Right now (6:20), the cash market is trading at $3957 (-0.1%) but there is absolutely no indication that the top is in.  Rather, I have been reading about the new GenZ BOLD investment strategy, which is buying a combination of Bitcoin and gold.  Mohammed El-Arian nicknamed this the debasement trade, which is a fair assessment and a number of banks have been jumping on this theme.

Perhaps more interesting than this story, which after all is simply rehashing the fact that gold is seen as a long-term hedge against inflation, is the fact that the dollar is trading higher alongside gold, which is typically not the case.  In fact, for the bulk of my career, gold was effectively just another currency to trade against the dollar, and when the dollar was weak, foreign currencies and gold would rise and vice versa.  But look at these next two charts from tradingeconomics.com, the first a longer term view of the relationship between gold and DXY and the second a much shorter-term view.

The one-year history:

Compared to the one-month history:

I believe it is fair to say that while there is a clear concern about, and flight from, fiat currencies, hence the strength of precious metals as well as bitcoin, in the fiat universe, the dollar remains the best of a bad lot.  Yesterday I described the problems in France and how the second largest nation in the Eurozone was leaderless while trying to cope with a significant spending problem amid broad-based political turmoil.  We have discussed the problems in Germany in the past, and early this morning, the fruits of their insane energy policies were shown by another decline in Factory Orders, this time -0.8%, far less than the 1.7% gain anticipated by economists.  I don’t know about you, but it is difficult for me to look at the below chart of the last three years of Germany’s Factory Orders and see a positive future.  Twenty-two of the thirty-six months were negative, arguably the driving force behind the fact that Germany’s economy has seen zero growth in that period.

Source: tradingeconomics.com

Meanwhile, the yen continues to weaken, pushing toward 151 now and quite frankly, showing limited reason to rebound anytime soon.  Takaichi-san appears to be on board with the “run it hot” thesis, looking for both monetary and fiscal stimulus to help Japan grow itself out of its problems.  The JGB market has sussed out there will be plenty more unfunded spending coming down the pike if she has her way as evidenced by the ongoing rise in the long end of the curve there.  While the 30-year bond did touch slight new highs yesterday, the 40-year is still a few basis points below its worst level (highest yield) seen back in mid-May as you can see in the chart below.  Regardless, the chart of JGB yields looks decidedly like the chart of gold!

Source: tradingeconomics.com

In a nutshell, there is no indication the fiscal/financial problems around the world have been addressed in any meaningful manner and the upshot is that more and more investors are seeking safety in assets that are not the responsibility of governments, but either private companies or have inherent intrinsic value.  This is the story we are going to see play out for a while yet in my view.

Ok, so, let’s look at how markets overall behaved in the overnight session.  China remains on holiday, but it will be interesting to see how things open there on Thursday morning local time.  Japan, was unchanged overnight, holding onto its extraordinary post-election gains.  As to the other bourses there, holidays abound with both Hong Kong and Korea closed last night and the rest of the region net doing very little.  Clearly the holiday spirit has infected all of Asia!  In Europe, though, we are seeing very modest gains across the board despite the weak German data.  The DAX (+0.2%) has managed a gain and we are seeing slightly better performance in France (+0.4%) and Spain (+0.4%) with the UK (+0.1%) lagging slightly.  On the one hand, these are pretty benign moves so probably don’t mean much, but it is surprising there are rallies here given the ongoing lousy data coming from Europe.  As to US futures, at this hour (7:20), they are all pointing higher by just 0.1%.

In the bond market, yields are continuing to edge higher with Treasuries (+2bps) leading the way and European sovereigns following along with yield there higher by between 2bps and 3bps.  There continues to be a disconnect between what appear to be government policies of “run it hot” and bond investors, at least at the 10-year maturity.  Either that or there is some surreptitious yield curve control ongoing to prevent some potentially really bad optics.

In the commodity markets, oil (+0.1%) is still firmly ensconced in its recent range with no signs of a breakout.  I read a remarkably interesting article from Doomberg (if you do not already get this, it is incredibly worthwhile) this morning describing the methods that the Mexican drug cartels have been heavily involved in the oil business in Mexico, siphoning billions of dollars from Pemex and funding themselves, and more importantly, how the US was now addressing this situation.  This is all of a piece with the administration’s view that the Americas are its key allies and its playground, and it will not tolerate the lawlessness that has heretofore been rampant.  It also implies that if successful, much more oil will be coming to market from Mexico, and you know what that means for prices.  As to the metals markets, they are taking a breather this morning with gold (-0.1%) and sliver (-0.3%) consolidating after yesterday’s rally.  We discussed gold above, but silver is about $1.50 from the big round number of $50/oz, something that I am confident will trade sooner rather than later.

Finally, the dollar is rallying again with the euro (-0.5%) and pound (-0.6%) both under pressure and dragging the rest of the G10 with them.  If the DXY is your favorite proxy, as you can see from the chart below, this is the 4th time since the failed breakout in late July that the index is testing 98.50 from below.  It seems there is some underlying demand, and I would not be surprised to see another test of 100 in the coming days.

Source: tradingeconomics.com

It should be no surprise that the CE4 currencies are all under pressure this morning and we have also seen weakness in MXN (-0.3%) and ZAR (-0.3%) although given the holidays in Asia, it is hard to make a claim there other than that INR (-0.1%) continues to steadily weaken and make new historic lows on a regular basis.

With the government shutdown continuing, there is still no official data although there is a story that President Trump is willing to have more talks with the Democrats.  We shall see.  I think the biggest problem for the Democrats in this situation is that according to many polls, nobody really cares about the shutdown, with only 6% registering any concern.  It is a Washington problem, not a national problem.  Of course, FOMC members will continue to speak regardless of the shutdown and today we hear from four more.  Interestingly, nothing any of them said yesterday was worthy of a headline in either the WSJ or Bloomberg which tells me that there is nothing coming from the Fed that matters.

Running it hot means that we will continue to see asset prices rise, bond prices suffer, and the dollar likely maintain its current level if not rally a bit.  We need a policy change somewhere to change that, and I don’t see any nation willing to make the changes necessary.  I have no idea how long this can continue, but as Keynes said, markets can remain irrational longer than you can remain solvent.  Be careful betting against this.

Good luck

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Who Will Blink First?

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The question’s now, who will blink first?
With Democrat leaders immersed
In internal strife
Concerned their shelf life
Is short and their party’s been cursed
 
Or will the Republican leaders
Start caring if New York Times readers
Scream loudly enough
The polls will turn rough?
My bet’s on the Dems as conceders

 

So, the government is shut down and yet, the sun continues to rise and set, and life pretty much goes on as before.  Is this, in fact a big deal?  It all depends on your point of view, I suppose.  It is certainly a big deal for those furloughed government employees, especially those whose jobs may disappear in the pending RIF.  But as I have often said, if they leave government and become baristas at Starbucks, they are almost certainly adding more value to the economy.  And consider, whenever you have to interface directly with the federal government (post office, passports, IRS, etc.) has the customer service ever been useful or effective?  Explaining that people will have to wait longer is hardly a compelling argument.  In fact, of all the places where AI is likely to be most useful, repetitive government tasks seems one of the most beneficial potential applications.

Nonetheless, this is the story that is going to lead the headlines for a few more days.  Ultimately, as we have already seen several Democrat senators vote to pass the CR, I expect enough others to do so to reopen the government, if not at the next scheduled vote tomorrow, then at the one following next week.  Ultimately, I believe what we’ve relearned is that most politics is simply performance art.

Too, remember that the decision as to who is considered essential, when the government shuts down, is left up to the president.  So, the Democrats shut down the government and have allowed President Trump to decide what gets done.  Pretty soon, I suspect they will figure out that was a bad idea as we have already seen specific projects in NY (home to both House and Senate minority leaders) get halted with the funds flows stopping as well.

Meanwhile, in the markets, nobody appears to have noticed that the government has shut down.  That is the key conclusion to be drawn from the continuation of the equity market rally where all three major US indices closed at record highs yet again. I am hard pressed to look at the below chart of those indices and glean any concern by markets regarding the government shutting down.  Perhaps, even, they are applauding the idea as it means less spending!

Source: tradingeconomics.com

Arguably, the market’s biggest concern is that government data releases will be missing from the mix, although, that too, might be a blessing.  The person most upset there will be Ken Griffin, as Citadel’s algorithms will not be able to take advantage of the data prints before everyone else!  In fact, I suspect that he is already bending the ears of the Democratic leadership to get things back to normal.

Meanwhile, would it be too much to ask to close the Fed during the shutdown?  Asking for a friend!

Ok, what is happening elsewhere in the world.  Japanese Tankan data the night before last came in a tick weaker than forecast, and than last month, but remains solid overall.  Deputy BOJ Governor Uchida reiterated that if the economy performs as currently expected, the BOJ will continue to remove policy accommodation going forward with expectations for a rate hike at the end of the month priced at a 60% probability.  Interestingly, despite that, the Nikkei (+0.9%) rallied overnight along with the yen (+0.3% overnight, +2.1% in the past week), although the yen move makes more sense.  As to the rest of Asian equity markets, China (+0.5%) and HK (+1.6%) are clearly unperturbed by the US situation as a positive outlook on trade talks with the US are the narrative there heading into their weeklong National holiday.  Elsewhere in the region, every major bourse is higher with some (Korea +2.7%, Singapore +1.7%) substantially so.  The US rally is dragging along the world.

This is true in Europe as well with the DAX (+1.4%) and CAC (+1.3%) leading the way as all major bourses rise alongside the US.  Apparently, increasing global liquidity is good for risk assets.

In the bond market, Treasury yields continue to slide, down another -1bp overnight after slipping -4bps yesterday.  The only data was the ADP Employment Report which showed a decline of -32K jobs compared to expectations of +50K.  It is important to recognize that this report included ADP’s benchmark revisions which, not surprisingly, resulted in fewer jobs create last year just like the QCEW showed with the NFP report two months’ ago.  This data took the probability of a Fed cut at the end of the month up to 99% and pushed the probabilities for cuts next year higher as well.

Source: cmegroup.com

Of course, this is the very definition of bad news is good for equities and bonds, as there continues to be a strong expectation that rate cuts are designed to support asset prices rather than address real weakness in the economy.  And in a way, this makes sense.  After all, the Atlanta Fed’s GDPNow forecast for Q3 is currently at 3.8%, hardly the sign of an impending recession.

So, stronger than long-term growth and rate cuts seem an odd policy pairing, but the stock markets love it!

The other markets that love this policy are precious metals which continue to make new highs as well, for gold (+0.5%) these are all-time highs, for silver (+0.3%) they are merely 14-year highs.  But the one thing that is clear (and this is true of platinum and palladium as well) is that investors are starting to look at the current policy mix and grow concerned over the value of fiat currencies.  Oil (-0.7%), though, is currently on a different trajectory, trading right back to the bottom of its months’ long trading range less than a week after touching the top.

Source: tradingeconomics.com

There seems to be a difference of opinion regarding future economic activity between equity and oil markets.  I have read a number of analyses describing peak oil, yet again, although this time they are calling for peak demand, not peak supply.  Given that fossil fuels continue to generate more than 80% of global energy, and that oil also is the base for some 6000 products utilized around the world in everyday applications and the fact that there are some 7 billion people who are energy starved compared to the Western nations, I find the peak demand story to be hard to accept.  But that’s just me and I’m an FX guy, so what do I know?

Speaking of FX, the decline in yields and growing belief in easier US monetary policy has worked its way into the dollar, pushing it a bit lower, about -0.15% based on the DXY.  But looking across both G10 and EMG currencies, the yen’s 0.3% move describes the maximum gain with the rest having either gained less or declined a bit.  Right now, the dollar doesn’t appear to be the focus of the macro world, although that is certainly subject to change at a moment’s notice.

We know there is no government data coming, although apparently, the Treasury is still auctioning T-bills today, that activity will not be delayed!  We also hear from Dallas Fed President Logan, someone who ostensibly has been mooted as a potential next Fed chair.  Again, the one thing we know about the FOMC right now is that there is no consensus opinion on what to do next, at least based on the dispersion of the dot plot from the last meeting.

While the Trump administration may be getting ready to axe a lot of Federal jobs, that will not stop the liquidity impulse.  It’s not that this government is going to spend less, it is just spending money on different priorities.  But running it hot is clearly the MO for now and the foreseeable future.  Ultimately, if the GDPNow forecast is correct, a much weaker dollar seems unlikely regardless of the Fed’s moves.  But that doesn’t mean a dollar rally, rather we could stay near here for a lot longer.

Good luck

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A Few Glitches

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Though stocks worldwide this year are higher
Investors have sought to inquire
If their dreams of riches
Might have a few glitches
And if they all sell, who’s the buyer?
 
Meanwhile, the key news of the day
Revolves around government pay
Will seven Dems buck
The warnings of Chuck
Or will the “resistance” hold sway?

 

Midnight tonight is the deadline for Congress to pass a continuing resolution to keep the government funded.  Democratic leaders, Representative Hakeem Jeffries and Senator Chuck Schumer, met with President Trump yesterday but came to no agreement.  The House has passed a clean CR, meaning it continues funding exactly as currently laid out, but the Senate needs 60 votes and Minority leader Schumer wants to increase spending by upwards of $1.5 trillion over the next 10 years to support the CR.  

Looking at the list of Senators, I count 9 democrats in states that President Trump won in the 2024 election and who may feel it is in their best interest to consider voting for the resolution than shutting down the government although history shows elected Democrats vote the party line regardless of the consequences.

I asked Grok what happens in a shutdown and reading through what occurs in each cabinet department, it will take several weeks, I believe, before anybody really notices.  The War Department and Homeland Security continue to function, so ICE agents are not going to disappear from the streets anytime soon.  Too, Social Security, Medicare and Medicaid are untouched.  I would argue those are the biggest issues.  The FBI and prisons remain active as does the FAA and TSA.  Maybe the biggest short-term issue is economic data will be delayed so there will be no NFP on Friday.  Given its recently demonstrated inaccuracies, that may be a benefit, although I’m sure that’s not the case.

Of course, the most important question is, will a government shutdown cause the stock market to decline, as we all know a rising stock market is the MOST important thing ongoing!  Thus far, it doesn’t appear investors are that worried, but perhaps that will change today.  After all, all the major US indices rallied yesterday although as of this morning (6:25) futures are pointing lower by about -0.1%.

But here’s the thing about stocks, no matter how much angst some folks have had, and how many calls for recession have been made, and how much people may hate President Trump, below is a table from tradingeconomics.com showing most major stock market indices and their performance YTD at the far right.  Take away Russia, which isn’t really major, and there is an awful lot of green!

Perhaps the proper question is, why has this been the case and can it continue?  Certainly, the fiscal underpinnings of almost every nation are deteriorating as debt grows rapidly alongside government spending while the prospects of repaying said debt diminishes.  So, the macroeconomic backdrop in many nations is shaky, at best (France, UK, US, Germany, Australia, Japan, to name a few).

Of course, any individual company will typically reflect the prospects of that company, the very fact that markets have rallied so strongly this year continues to support the rally.  Remember, there have been numerous recession calls, and even the Fed has begun to look at the employment situation as becoming a bigger issue than inflation, indicating they, too, are concerned over future economic growth prospects.  Hence, the widespread expectations for further rate cuts.  in fact, looking at the futures market, not only is it pricing two more cuts this year, but a further two more by September 2026, and then a long period of 3.0% Fed funds afterwards.

Thus, it appears the equity market is counting on rate cuts to support future earnings even though those rate cuts imply weaker economic activity which will undermine future earnings.  Quite the balancing act!  But then, I’m just an FX guy, so the intricacies of equities are clearly lost on me. 

Ok, you’ve already seen the overnight equity movement with Chinese shares the largest beneficiary of PMI data showing modest growth.  Combining that with the news of further stimulus yesterday and things in China look pretty good right now.

Turning to bonds, yields fell yesterday despite any noteworthy data.  Perhaps it was the Fed speakers who highlighted the need to ease policy further as their concerns grow over slowing employment.  At any rate, this morning, 10-year Treasury yields are unchanged at 4.14%, while a few bps above the lows seen last week, hardly demonstrating a major move higher.  European sovereign yields have edged higher by 1bp this morning across the board, also not really demonstrating much concern about things.  We did see some Eurozone data this morning with French inflation soft (1.2% Y/Y) while German Unemployment rose slightly and German state inflation data has generally been higher than last month.  The nationwide number is released at 8:00 this morning.  Meanwhile, Italian inflation was a bit softer than forecast (1.6%), so bond investors seem satisfied for now.

As has been the case for a while now, the biggest moves have come in the commodity space with oil (-0.7%) falling back to the middle of its trading range as per the below chart from tradingeconomics.com.

For whatever reason, the end of last week had oil bulls out in force, but they are an unhappy lot this morning.  Apparently, President trump and Israeli PM Netanyahu have agreed a Gaza peace plan, although the Palestinians were not privy to the details.  Perhaps peace there is reducing concerns in the oil market although I would have thought the Russia/Ukraine situation has a more direct impact.  As to metals, after another series of new highs across the precious space yesterday, this morning we are finally seeing a bit of profit taking (Au -0.7%, Ag -1.7%, Pt -2.8%, Cu -1.0%).  However, it is difficult to look at the chart and sense that this is over.

Source: tradingeconomics.com

Finally, the dollar is a touch softer this morning, essentially unchanged vs. the euro and pound although the yen (+0.4%) and Aussie (+0.4%) have both managed to rally.  The RBA met last night and left rates on hold, as expected, although their commentary afterwards had a hawkish tilt regarding the future of inflation which undermined equities and helped the currency.  As to the yen, their ‘Minutes’ were released and indicated there was growing support for a rate hike in October, although I will believe it when I see it.  But away from those two, there was virtually no movement and no news of note.

On the data front, I will lay out the alleged releases, although with the shutdown, the BLS and BEA ones will likely be delayed.

TodayCase Shiller Home Prices1.6%
 Chicago PMI43.0
 JOLTs Job Openings7.2M
 Consumer Confidence96.0
WednesdayADP Employment50K
 ISM Manufacturing49.0
 ISM Prices Paid63.2
ThursdayInitial Claims223K
 Continuing Claims1930K
 Factory Orders1.4%
 -ex Transport0.1%
FridayNonfarm Payrolls50K
 Private Payrolls60K
 Manufacturing Payrolls-7K
 Unemployment Rate4.3%
 Average Hourly Earnings0.3% (3.7% Y/Y)
 Average Weekly Hours34.2
 Participation Rate62.3%
 ISM Services51.7

Source: tradingeconomics.com

Today’s data will be released, and tomorrow’s is privately sourced, so shouldn’t be a problem, but come Thursday and Friday, that’s when things will go missing.  Ironically, the biggest impact will be on options traders who frequently place trades in anticipation of a data point, and with that data point missing, those premia are likely to diminish quickly.  Too, spare a moment for the algorithms who won’t have anything to trade against without data.  Poor programs 🤣.

History has shown the dollar tends to decline through government shutdowns, if they last any length of time (>3 or 4 days), so if we shut down and are still that way next week, I expect we could see some weakness.  But I’m sure there will be one more vote today to see if it will happen.  My take is a shutdown is in the cards but for how long, I have no idea.

Good luck

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No Cash Left in the Fisc

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Right now, markets keep taking risk
And lately, the pace has been brisk
But coming next week
We could see a peak
If there’s no cash left in the fisc
 
A government shutdown would raise
Concerns about ‘nomic malaise
As well, what I see
Is Trump’s OMB
Is planning a RIF anyways

 

Volatility remains absent from most markets these days, metals excepted, and given the dearth of data until tomorrow’s PCE report, the focus is beginning to turn elsewhere.  Perhaps the biggest story developing right now is the potential US government shutdown if no continuing resolution is passed by Congress.  The government’s fiscal year runs from October 1 through September 30, and the rules are if Congress hasn’t passed appropriations bills by the end of the fiscal year, nonessential services are ended, and government employees are furloughed until that process is completed.  As of right now, the House of Representatives has passed a clean bill, meaning it continues spending at the current rate, and we are all awaiting on the Senate.  However, the Senate needs 60 votes to pass it to overcome the filibuster and right now, the Democratic Minority Leader, Chuck Schumer, claims they will not support the bill.

First, understand this is not unprecedented.  In fact, according to Grok, it has happened 21 times since 1980 with the longest being 35 days in 2018-19 over funding for the border wall.  Now, I ask you, can anyone remember the impact of any of those shutdowns, which in fairness typically last less than a week?  

Next, it is worth understanding what actually happens during a shutdown.  National Parks are closed, while passport services, HUD services, SBA services, scientific research and EPA inspections are the type of things that are put on hold.  Also, the BLS will pause data collection and calculations, although given their recent track record, that may be seen as a benefit!  But things like Social Security, Medicare, Medicaid and the Military are all unaffected.

Naturally, there is a lot of politicking ongoing with this process and apparently, President Trump has given marching orders for departments to begin a RIF if the government is shut down.  So, when things reopen, there will be fewer federal employees, one of the goals of this administration, and something that is anathema to his opponents.

From a market perspective, the impact on equity markets during the December 2018 – January 2019 shutdown was actually a rally of just over 10%, although the market did decline in the month leading up to the shutdown.  My point is, there is a lot more politics than economics in this process.

But away from that story, commodities remain the market with the most interest as oil (-0.5%) continues to trade within the range I highlighted earlier this week with a top at $65.50, but has made a technical break above its 50-day moving average, which has the bulls starting to get excited.  As well, the backwardation of the curve is increasing, another bullish sign and much of this is being laid at the feet of President Trump’s seeming turn on the Russia/Ukraine war, where he is quite tired of President Putin’s dissembling.  Certainly, a break above that range top would be at least short term bullish for crude.

Source: tradingeconomics.com

As to the precious metals, while gold continues to trade well, silver has taken the mantle and as you can see from the chart below, is accelerating higher at an even more impressive clip than the yellow metal.  This is a common occurrence as silver historically outperforms gold, on a percentage basis, when both are in bull markets like this.  Just wait until it reaches $50/oz, and makes new all-time highs, and you will see even more discussion of the metals and why they are rallying with inflation concerns a major part of that discussion.

Source: tradingeconomics.com

Meanwhile, financial instruments are far less exciting lately with equity markets stabilizing after their recent run and bond markets also doing little.  Granted, we have seen two consecutive down days in US equity markets, but the magnitude of the decline was de minimis, so it is not really telling us very much.  European markets appear more closely linked to the US, with all bourses there lower by between -0.1% and -0.5% this morning although we did see some modest gains in Asia (China +0.6%, Japan +0.3%).  Net, it seems investors are not certain where to turn right now and are waiting for more clarity from the Fed as to whether more rate cuts are on the way.

The same is true of bond investors who apparently are unconcerned over the shutdown threats, with yields unchanged despite the increasingly combative rhetoric.  We did hear from SF Fed president Daly yesterday, a known dove, who explained that she is coming around to the idea that more cuts are necessary, and they were simply waiting to see how tariffs were going to impact things.  I might argue that she is anxious to cut rates but also doesn’t want to seem to support President Trump’s demands.

Finally, the dollar, after a pretty solid rally yesterday, is essentially unchanged this morning as well.  (That seems to be the theme today, no change.). As I look across my screen, the largest move I see is 0.15%, which is how far CHF has declined on the session, otherwise things have been completely dead.

On the data front, this morning brings the weekly Initial (exp 235K) and Continuing (1930K) Claims data as well as Durable Goods (-0.5%, 0.0% ex-Transport) and the final Q2 GDP reading (3.3%) all at 8:30 with Existing Home Sales (3.96M) at 10:00.  Yesterday saw New Home Sales rise dramatically more than expected at 800K although most analysts expect that number to be revised lower as the Census Bureau gets more information.  Nonetheless, it is a sign that the economy is not collapsing, that’s for sure.  

We also hear from four more Fed speakers today, Williams, Bowman, Barr and Daly again, and we will need to see how they all interpret the current situation.  We learned from the dot plot that there are a lot of different opinions at the Fed right now, and personally, I am very glad to see that.  Given the overall confusion, and the asynchronous nature of the economy right now, it would be more concerning if everyone was on the same page.

As far as the shutdown is concerned, you can be sure that this process will continue until next Tuesday night, at the earliest, if the Democrats cave, and if not, we will then be bombarded by both sides claiming it is the other side’s fault.  Eventually a spending bill will be passed, and as we saw back in 2019, markets pretty much look through this stuff.  Meanwhile, unless the data starts to really deteriorate and brings Fed comments along for that ride, I think the dollar is probably in a rough equilibrium space for now.

Good luck

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Starting to Fret

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In DC, they’re starting to fret
That Trump will make good on his threat
If government closes
The risk that it poses
Is markets become quite upset

 

There is yet another budget showdown in Washington as the Biden administration never passed the bills necessary to fund the government for the rest of this fiscal year ending on September 30th.  The previous continuing resolution (CR) expires at midnight on Saturday and if a new funding law is not enacted, then a government “shutdown” occurs.  Now, a government shutdown is not like a company that runs out of money shutting down.  Rather roles the President deems essential continue to operate, along with the military, but other roles see the people furloughed until new legislation is passed.  Everybody gets paid back wages when things go back to normal.

The situation is that the House of Representatives did pass a CR to fund the government at almost the exact same levels as last year and sent it to the Senate.  However, in the Senate, it needs to beat a filibuster, so needs 60 votes to pass and get to President Trump’s desk.  However, last night, Senate Minority Leader Shumer declared the Democrats would not support the bill, so would rather have the government shut down.  This is a big change from the previous 3 times that there were government shutdowns, because each of those was blamed on Republican intransigence.  

In the end, whatever the politics, the market impact has been negative for stocks while bonds held up, even rallied.  Of course, previous shutdowns all were amidst very different economic environments as inflation was quiescent and bull markets in both stocks and bonds were extant.  As such, arguably, the momentum behind the market was sufficient to offset any concern over the shutdown.  But this time markets are already under pressure going into the potential shutdown.  I fear that market dislocation, at least in the equity markets, could be far more severe if this one occurs.  Something to keep in mind.

The history shows the US
Has long done all things to excess
But now, as they try
With less, to get by
The pundits complain of regress

Reading the WSJ this morning, I couldn’t help but think of the George Costanza opposite day episode of Seinfeld when reading the Heard on the Street column decrying the fact that the Trump administration is seeking to rein in fiscal excess.  Of course, this is an issue that has been fodder for the punditry for a long time, how the US was living beyond its means and borrowing too much money.  But now, this article is concerned about the opposite.  The key concern is that if the US government doesn’t continue to run massive deficits, the economy will slow and corporate profits will fall dramatically, resulting in falling equity prices.

Arguably, this would always be the case if a change of this nature were to be made.  And remember, the punditry was all in on making these changes.  However, now, they point to Germany and the DAX, which has outperformed US markets over the past several weeks as the model.  (chart below from WSJ)

And what is Germany doing so well?  Why, they are talking about borrowing an extra €500 billion, eliminating their debt brake that ensures budget deficits remain below 0.35% of GDP, and funding a huge buildup in defense spending.  Germany, which has long been seen as the only source of fiscal rectitude is now being lionized for getting rid of that trait.  As I said, opposite day!

The lesson, if you haven’t learned it yet, is that the ascendance of Donald Trump to the presidency is going to continuously change many long-held beliefs in governments around the world, as well as in the punditry, who may find that things which seemed great in theory may have consequences previously unconsidered.  From a market perspective, this means volatility will continue to be the best estimate for the future.

Ok, let’s turn our attention to markets and see how things performed overnight.  After yesterday’s mixed session in the US, where the DJIA could not manage a gain despite cooler than expected CPI readings, overnight saw a mixed picture as well.  Japan was either side of unchanged while both Hong Kong (-0.6%) and China (-0.4%) slipped as did most other Asian markets with Malaysia (+1.7%) the true exception.  In Europe, though, screens are green as excess government spending is rewarded, although the gains are modest, 0.3% or so.  

On the topic of excess spending regarding Germany, I read yesterday that the plan to alter the constitution may have serious problems (meaning that spending may not materialize) because about 50 Bundestag members in the old parliament lost their seats in the election, so it is not clear they will be willing to vote to overturn the constitution during the current lame duck session and allow the debt brake to be set aside for defense purposes.  As I said when the story first arose, we are still a long way from Germany paying their own way defensively.  US futures, meanwhile, are slightly softer at this hour (7:15).

In the bond market, yesterday saw yields climb a few bps and this morning those trends remain with Treasury yields (+2bps) not climbing as much as European sovereigns (+3bps to 4bps) as there appears to still be a level of confidence that all the extra defense spending will happen.  One story that should have Europeans concerned is that the European Commission, in their effort to find funding for their newly found defensive aggressiveness, have spied the €10 trillion in savings that European citizens hold.  Frau von der Leyen, the European Commission President was quoted as saying, ”we’ll turn private savings into much needed investment.” 

Call me crazy but my economics classes taught me the identity that Savings º Investment, so I am not sure why those savings aren’t already being invested.  Perhaps European citizens are not investing where Frau von der Leyen wants and that is the problem.  At any rate, I suppose even if Germany fails to overcome its constitutional debt brake, the EU will get there anyway.

In the commodity markets, oil (-0.3%) is edging lower after a nice run for the past several days as it bounced off the bottom of its trading range.  Yesterday’s EIA data showed a large draw in gasoline, but I am given to understand that is a seasonal thing (H/T Alyosha).  Meanwhile, nothing has dissuaded investors that gold (+0.25%) is a good thing to hold as it rallied further after yesterday’s gains, although both silver (-0.3%) and copper (-0.4%) are a touch softer this morning.

Finally, the dollar is somewhat firmer this morning, albeit not dramatically so.  Of course, it has been under significant pressure during the past week+, so this trading response ought be no surprise.  SEK (-0.8%) is the laggard in the G10, but you must remember that it has been the leading gainer over the past month.  Meanwhile, AUD (-0.5%) and NZD (-0.45%) are also under a bit of pressure this morning, but the rest of this bloc has seen far less movement.  In the emerging markets, HUF (-0.6%) is the laggard with the rest of the bloc seeing declines on the order of -0.3% or less.  As I said, nothing dramatic here to see.

Yes, yesterday’s CPI data was a bit cooler than anticipated, but as my friend The Inflation Guy™, Mike Ashton, explained here, I wouldn’t get too excited that inflation is collapsing back to the Fed’s 2% target.  This morning brings the weekly Initial (exp 225K) and Continuing (1900K) Claims data as well as PPI (headline 0.3%, 3.3% Y/Y; core 0.3%, 3.5% Y/Y). However, given CPI is already out, I don’t think it will have much impact.  Rather, as we have observed lately, politics remains the key driver of all market reactions.  The unfolding government shutdown in the US and the German debt drama are the two most noteworthy issues right now, but Ukraine and the Middle East are still out there to offer surprises.

Once again, volatility is the only thing about which we can be sure.  That said, my confidence is growing that the dollar will decline over time.

Good luck

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