Mixed U.S. Data Produces Stronger Dollar And Weak Gold And Oil

We have our eye on two areas today: the U.S. and China. It is a tale of two economies. One is obviously more mature than another. One sends out reports that often seem fictional in nature yet helps to drive markets.

Softer-than-predicted producer prices and retail sales in the U.S. in March briefly pushed the dollar lower, but Wednesday's dollar uptrend remained intact once the Fed's Beige Book showed expanding economic activity in the spring.

The report, especially concerning wage growth, was rosier than expected but probably not rosy enough to prompt the Fed to raise rates more than one more time this year. For that reason, we’re calling for longer-term dollar weakness after some spring to early summer strength.

The stronger dollar jumped all over gold prices today, accounting during most of the session for virtually all the decline. Late in the day, though, programmed selling kicked in until now about 40% of the $14.50 decline is due to regular trading, not greenback power.

Silver, however, continued its rally in the face of the dollar’s extraordinary day and is looking to close up half of a percent.

Just so gold and haven currencies didn’t feel lonely, yields on U.S. Treasuries swung between plus and minus, with the 10-year, indicating there was plenty of risk appetite.

A lot of the appetite seemed to come from data out of China that claimed exports rose significantly more than survey economists said they would. Dollar-denominated exports for March increased 11.5% over February compared with a Reuters poll that saw only a 2.5% increase coming.

The data also showed China's import of commodities increased month-over-month in March, which could boost commodity prices.

Speaking of commodities, both benchmark crude oil futures were down about 1.30%, trimming the exuberance of yesterday’s market, which soared on a rumor of a combined OPEC and non-OPEC production pullback.

Weak oil did not hurt equities, which were up on every index around the globe.

We are not entirely happy about the news from China. For a long time, we have been saying that there is so much spin on Chinese data that it might as well be a major league curve ball.

The size of the upticks seen on the Chinese growth charts are always very, very regular, a very suspicious pattern. All right, you say – so what? Because the steps down also have had a similar regularity.

This is simply not true of other major economies. The U.S. economy is about middle of the road when it comes to such a measure. France is almost as regular as China, and Japan is most volatile (surprising, isn’t it?).

It seems to us that the books are cooked to make it appear as if China’s economy is much more orderly than it really is, which is a form of protectionism biased against sellers in the Chinese equities markets.

The more stable, or less volatile, an index is, the more likely capital will be attracted to stocks listed on that index or exchange. 

In lieu of more formalistic controls on share selling or price volatility, we see another nasty gremlin pop up from the central planners.

Wishing you as always, good trading,