Commodity Trade Mantra

RBI Cuts Repo Rate 50 Basis Points, But Rupee Rallies

RBI Cuts Repo Rate 50 Basis Points, But Rupee Rallies

RBI Cuts Repo Rate 50 Basis Points, But Rupee Rallies

Well, the morning, so far, looks to be another day of mixed performances in the currencies, with the pound sterling, Mexican peso, Swiss franc, New Zealand dollar/kiwi, Chinese renminbi, Indian rupee, S. A. rand, and Russian Ruble all on the plus side of the ledger this morning, while the Aussie dollar (A$), Canadian dollar/loonie, euro, and gold are not faring so well as their brothers. There are a few others that are pretty flat on the day.

The euro, actually is down a bit now, but was up overnight, and traded well into the 1.12 handle.  I think traders did the V-8 head slap once they had pushed the euro to 1.1245 overnight, and realized that there’s an important piece of data printing this morning in Germany and then freaked out and began to sell the euro.

The individual regions of Germany will report this month’s CPI data and then it will all be rolled into one data print for CPI in Germany, the Eurozone’s largest economy.

Most observers believe that the recent rise in inflation in Germany will take a hit this month, due to the weaker oil prices, and therefore, print negative. A negative print for Germany would NOT bode well for the Eurozone aggregate CPI report which will print tomorrow.

The Eurozone did print a better than expected economic confidence report this morning, which helped the euro rise earlier before traders had their V-8 moment.

The Eurozone Index of executive and consumer confidence rose to 105.6 this month from a revised 104.1 in August. The so-called experts had forecast a decline in confidence to 104.1, from the previously reported number of 104.2.

Remember, folks, this is Eurozone area as a whole, not just Germany. So that means from Italy to Holland, and most points in between confidence is rising.

Apparently they haven’t read the rumors swirling around Deutsche Bank’s problems. Or maybe the press is making too big of a deal out the rumors right now, and the people on the street don’t see it that way.

The VW thing though is real, and so far it hasn’t stretched to any other German car makers, but the rot on VW’s vine has been exposed and it’s going to be quite costly, not only to VW but to Germany and vis-a-vi the Eurozone.

Well, both Fed members that spoke yesterday, Dudley and Williams, talked about how the Fed would “probably” raise rates this year . I found this to be a sign that maybe, just maybe, because you never know, but maybe the Fed members are seriously thinking about hiking rates this year.

I find this to be quite different than my own opinion on the subject, but they are the “insiders” they should know whether they are going to hike rates or not, right?

Oh, that’s right. We’ve heard all this talk for over a year now of how interest rates were going to be higher in 2015, and now we’re down to the last 3 months of 2015. And still no rate hike. So, do we “start to believe them now”?  Is now the time to forget all their bad directions before and follow their directions now to higher rates?

I just don’t think so. But the markets are a different breed, folks. They are fickle, and easily influenced. I find these things to be negative attributes, but they are what they are, right?  I still don’t see the Fed hiking rates this year, but should they get a wild hair idea and surprise me, they’ll downplay it as if they are sorry they did so, which will tell us that the only reason they hiked rates was to save face with the markets.

Well, I mentioned above that the Indian rupee was one of the currencies with gains this morning, and that’s puzzling to me at this time, given that the Reserve Bank of India (RBI) cut their repo interest rate by 50 Basis Points (1/2%) overnight!

I read this morning that there was only one forecaster out of 52 that called for the RBI to cut their repo rate, and now that same fellow says there are more to come.

Hmmm…  I’m a fan of RBI Gov. Rajan, and I think that if he feels as though this will help offset the China slowdown. But to see the rupee rally like it has after a rate cut? That’s a surprise.

Well, U.S. stocks are seeing the other side of life this month, and have lost quite a bit of ground in September.  According to the Bloomberg, the U.S. Dow has lost -3.18% month to date, and the S&P 500 has lost -4.58%, for the same period.

The only reason I mention this, is to point out that there are still some traders out there that trade the “risk on, risk off” stuff, so that’s probably what’s behind the A$’s sell off this morning, and any of the other currencies associated with Global Growth, because stock selling in the largest economy is not a good sign for Global Growth.

One of these days, Alice.  These traders will all leave that stupid, risk on, risk off, trading behind them. Most have already, but there are always a few that hold on.

The two-day appreciation of the Chinese renminbi has been quite impressive.. But let me tell you what I’m seeing here. Last week, we saw the exact opposite in the renminbi, as the currency depreciated by a large margin in two-days’ trading. So, after two weeks in the trading calendar, the renminbi is about where it was two weeks ago.

So, to me, it appears that the Chinese are back to influencing the currency to remain steady Eddie. Yes, they gave the better part of the conn in the currency to the markets, but the Chinese remain there in the background to smooth out the edges.

Tonight, Chinese Industrial Production will print. This is a Big One for China, so keep your eyes on that, if you can, for it will give us more hints about Global Growth.

In the U.K. today, Bank of England (BOE) Gov. Carney, is due to speak.  This should be interesting. I wonder if there will be a question and answer period after the speech, for I would think that the U.K. reporters, who are known to be blunt and to the point, and not throw softballs to the people they question, would question Carney on his call for the past year and a half that interest rates were going to go higher, but never did.

Which would be good, given that I think Carney will talk today about how there’s still a need for interest rates to go higher, but now change his timing to “next year”. Come on mates, give it to him good! I want to read about it this afternoon!

I told you above that gold is down again today. This time by $5, as I write. We have the Russian President, meeting the U.S. President, and they are both on different pages as to how to deal with Syria, but there’s no geopolitical risks out there this morning!

I shake my head in disbelief.  But, gold is down, and so too is silver, and platinum, with palladium the only precious metals of these 4 to be trading with a gain this morning.

Gold may still be viewed as a barbaric metal by many in the U.S, including the government. But to countries like China and Russia, it’s far from that!

Over the past few years, I’ve told you about the gold hoarding that China and Russia have been doing, and the latest reports indicate that they are not finished adding physical gold to their holdings. In August, Russia reported that they had added 31.1 tonnes of physical gold, which computes to around 1 million ounces.  In China, they added 15.98 tonnes of physical gold in August.

What I find very impressive about these numbers is that these two countries have seen massive foreign exchange outflows, but still they buy physical gold. OK, I hear you asking the question. Why are they doing this? Shouldn’t they be battening down the hatches right now?   Ahhh grasshopper. That would be the normal course of business for countries. But these two countries see things differently.

First and foremost, they see major problems for countries and their economies and the financial system, and so they want to be “players” with large holdings of gold when things unravel.  And second, they see value in gold at current prices.

The U.S Data Cupboard has the S&P/CaseShiller Home Price Index for July to print today, and then the National Consumer Confidence Index will print for September.  I’m more interested in the Consumer Confidence report to see if consumers are still drinking the Kool-Aid. I would think that they have seen the farce that is the economy by now, but then we don’t know who was surveyed, right?

I wanted to mention that I saw that Ron Paul has someone that he can compare notes with. legendary investor Carl Icahn has put together his own video, a la Ron Paul, where Icahn explains the “dangers ahead”.

Interviewed for the release of the video scheduled for today, Icahn said, “I’ve been worried for the last 5, 6 months about the market and economy, and the dangerous spot that we’re in.”  I really don’t like those long videos, but they seem to be the thing to do these days.  I think I ought to do one, what do you think about that? HA!

Well, I always love it when 1. I see my name up in lights, and someone has decided that something I said, is worth repeating to their audience, and 2. When I read something that sounds like I wrote it.

It’s the latter of the two this morning, as I read through this, I kept saying, I said that, I said that, I said that too!  So, this is a guy named Jeff Thomas, and he can be found here. And of course here are the snippets:

In the early 2000s, I began to advise friends and associates that much of the world would likely be entering a depression before the decade was out.

In my belief, it would happen in stages, first with an initial mini-crash and recovery, but that, at some point, several years later, the recovery would prove to be a false one. The economy would remain in the doldrums. Then, a far bigger crash would take place and the world would be in a full-blown depression.

As a hedge, I recommended that they buy gold, as gold would survive and retain value, as stocks, bonds, and even currencies went south.

I turned out to be correct on the timing of the initial crashes, but entirely incorrect on the timing of the second, greater crash.

I considered it possible that the major events could begin as early as 2010, but would more likely occur from 2012 on. That date has passed, and, although governments have consistently damaged their economies ever further, the house of cards, however shaky, is still standing.

Chuck again. Remember, what I told you a few years ago. That the 2007/08 financial meltdown was the front side of the hurricane, and that we had entered the eye of the storm, where the calm would trick investors, Central Bankers, and governments. Into thinking that the calm had returned and we were onto better times.

But the hurricane has a backside, and it’s usually worse than the front side. And the Backside is slow in getting here. I would have thought it would be here by now. But once again, what is evident is not imminent. But that doesn’t mean we just shuck our responsibilities to invest properly, diversify our investment portfolios and be diligent about keeping up with our holdings.

That’s it for today. I hope you have a Tom terrific Tuesday!

 

 

Courtesy: Chuck Butler for The Daily Reckoning

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