Notes From Underground

Of all the U.S. president’s tweets (and believe he has a lot), Friday’s tweet about Federal Reserve Chairman was one of the best. Unfortunately, there probably should’ve been a comma between “guy” and “Jerome” since one could ask the question about any member of Trump’s economic team. President Trump could be asking the Fed chairman about Secretary Steven Mnuchin, or Commerce Secretary Wilbur Ross, and certainly of Larry Kudlow or Peter Navarro. NOTES FROM UNDERGROUND has been asking that for many months. In my opinion, the only Trump pick that inspires confidence is Robert Lighthizer.

Trump’s tweet was competing with the unemployment data, which was spun as extremely positive by home team cheerleader Larry Kudlow (that’s part of his job description, don’t you know). However, outside the household survey the data was tepid. Yes, the recapture of average work week lost in the previous release was good but private sector job creation is not as strong as ADP and others have been predicting. Initially, the tepid job numbers promoted a rally in the GOLD and silver, a rally in debt markets and a sustained gain in equities.

However, the rally in the precious metals was erased late in the session as Powell spoke in Zurich in a moderated Q&A forum with Swiss National Bank President Thomas Jordan. Powell’s well crafted responses seemed to remove any hint of a 50 basis point cut at the September 17-18 FOMC meeting, which lent support to the recent correction in GOLD and silver. The U.S. dollar initially sold off on the employment data but following Powell’s comments it regained some strength and closed virtually unchanged (but on its lows for the week).

The DOLLAR lost ground against the euro as some sense of a less aggressive ECB easing has leaked into the market. This sentiment also provided a corrective posture to the precious metals as the GOLD/EURO cross corrected, in addition to other currencies against the metal.

While the financial press was so focused on Powell’s words, it missed a significant point from the SNB’S Jordan. A point that carries additional weight because of this week’s ECB meeting. Jordan was asked about the SNB possibly sending every Swiss voter a check in an effort to elevate the inflation level. (Remember that the Bush White House did this early in his first term with the onset of the recession following the DOTCOM implosion.)

Jordan emphasized that sending a CHECK TO EVERY CITIZEN WOULD VIOLATE THE SWISS CONSTITUTION FOR THAT WOULD BE A GOVERNMENT FISCAL ACTION. This came up because a couple of weeks ago there were EU voices raising the idea of the ECB sending every EU citizen either a check or electronic deposit.

The ECB would be embarking on an act of FISCAL STIMULUS, which would most certainly violate EU rules and send the Germans, Dutch and Austrians to the European Court of Justice. The ECB should refrain from any further monetary stimulus and force each nation to have to begin a fiscal policy of their desire. TO MARIO DRAGHI: Less is certainly more in this environment. Going from negative 40 to negative 50 basis points is a meaningless gesture, especially as it will be offset by devising a more convoluted TIERING to limit bank payouts to the ECB.

Germany is already threatening to prevent commercial depositors from being forced to pay interest on any negative interest rate account. Heed the words of Thomas Jordan as to avoid running afoul of EU law and possible German lawsuits.

***While the U.S. employment data was tepid, Canada had blowout numbers as 81,000 jobs were created versus a consensus +19,000. In addition, the IVEY PMI data came in hot at 60.1 versus an expected 55.5, justifying the Bank of Canada’s decision to keep rates on hold at 1.75%.

The Canadian dollar had a strong day but still cannot take out the 200-week moving average, which has provided stiff resistance. Do your technical work to discern risk levels for your comfort zone. Also, pay attention to the CAD/CHF cross, which is also challenging its 200-week moving average.

If commodity prices were to get any type of general bid the Canadian picture OUGHT to improve along with the improvement in the jobs situation. In a world bereft of yield, Canadian dollar certainly gets a look on a relative basis. For further confirmation do the technicals on the Canadian dollar crosses—sometimes a multifaceted analysis is the best of all.

Tags: Canadian Dollar, currency crosses, ECB, Federal Reserve, Gold, Jerome Powell, Mario Draghi, silver, SNB, Swiss Franc, Thomas Jordan

This entry was posted on September 8, 2019 at 3:43 pm and is filed under Central Banks, Currency, Fed. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.