Keith Underwood 2 Comments

4 Things That Worry Me

  1. The Japanese yen (110.50 today) is strengthening versus the US dollar (52 week range 110.27 – 125.86) and the yen is typically viewed as a safe haven currency during market uncertainty and turmoil.
  2. The 10-year US treasury yield (1.74%) is lower (30% from it’s June 30th 2015 peak of 2.50%) even as inflation expectations are picking up. Safety is being sought as yields drop.
  3. Gold (1220.50) is, and has been rising, since December and now stands nearly 21% higher. Gold is also a safe haven for investors.
  4. Central bankers are using negative interest rates as a policy tool. Disaster.


Am I missing something here? Why are these 4 (should we add in oil as a fifth?) indicators painting such a negative picture and the world is just shrugging with acceptance? These 4 macro measures of the health of the investment community are not good. They are each, on their own, somewhat interesting, but together, these smell like the tin of tuna in the back of the fridge that was forgotten about months ago.

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Keith Underwood 1 Comment

July NFP: A marginal increase of +215,000

Total US nonfarm payroll employment rose by 215,000 in July, the unemployment rate held at 5.3%, and average hourly earnings for all employees on private nonfarm payrolls rose a nickel, to just under $25. May and June NFP combined was revised just +14,000. July’s marginal increase of +215,000 does not, in my opinion, secure a September rate liftoff, but it does keep the prospect of a September (well telegraphed this week by FED talking heads) move alive. I continue to believe that 2016 will be the start of a gradual process to normalize rates.

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Keith Underwood No Comments

May US Nonfarm Payrolls Surprise to the Upside

Total US nonfarm payroll employment rose by 280,000 in May, the unemployment rate remained at 5.5%, and pay for employees accelerated. March NFP was revised from +85,000 to +119,000 and the change for April was from +223,000 to +221,000. With these revisions, employment gains in March and April were 32,000 higher than previously reported and the average monthly gain over the prior 12 months stands at 251,000. Job gains occurred in professional and business services, leisure and hospitality, health care, and mining employment continued to decline.

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Keith Underwood No Comments

Thank you IMF for validating my US interest rate view

For those that have been reading my blog on, you may well remember that I posted a piece in February (“The FED will not raise interest rates in 2015”) of this year that the perfect storm of a strong dollar, the oil collapse, and tepid global growth would delay a US rate rise until early 2016. Today, the IMF’s annual review of the state of the US economy has agreed with two out of three of my points (strong dollar and oil) to urge the FED to delay lifting rates until early 2016.

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Keith Underwood No Comments

Notable events the week of 6th April 2015

Opening pitch of the 2015 Major League Baseball season is 8 p.m. EST Sunday, April 5 between the Cardinals and the Cubs and the 28 remaining teams will open the season on April 6.  After this past winter in the Northeast, baseball is a welcome sign of the impending warmer weather that is long overdue.  I make no predictions on the World Series other than to say Go Yankees!

Monday the 6th:

Japan Leading indicator (Prelim.) index 104.9 exp. versus 105.50 prior

US Fed’s Dudley Speaks on Economic Outlook in New Jersey

Canada Ivey PMI index 49.5 exp. versus 49.7 prior

US ISM Non-Manufacturing index 56.6 exp. versus 56.9 prior


Tuesday the 7th:

New Zealand RBA overnight rate 2.25% exp. versus 2.25% prior

Spain, France & Germany Services PMI

Eurozone Composite PMI index 54.1 exp. versus 54.1 prior

Eurozone Services PMI index 54.3 exp. versus 54.3 prior

UK CIPS/Markit Servies PMI index 57 exp. versus 56.7 prior

Eurozone PPI %m/m -0.7 exp. versus -0.9 prior

US Fed’s Kocherlakota speaks in North Dakota


Wednesday the 8th:

Japan BoJ Policy statement and Governor Kuroda press conference

German factory orders (sa) %m/m 1.5 exp. versus -3.19 prior

Swiss CPI %m/m 0.1 exp. versus -0.3 prior

US Fed’s Dudley speaks on monetary policy in New York

Canada Minister Olivers to speak on state of the Canadian  economy

Japan BoJ MPC- Overnight rate % 0.1 exp. versus 0.1 prior


Thursday the 9th:

German industrial production %m/m 0.1 exp. versus 0.6 prior

UK BoE Monetary policy committee meeting and rate decision

UK BoE MPC – APF total 375 bn exp. versus 375 bn prior

UK BoE MPC – Base rate % 0.5 exp. versus 0.5 prior

Canada Building permits %m/m 8.5 exp. versus -12.9 prior

Canada House price index %m/m 0.1 exp. versus -0.1 prior

US Initial claims 278k exp. versus 268k prior


Friday the 10th:

China CPI %y/y 1.3 exp. versus 1.4 prior

China PPI %y/y -4.7 exp. versus -4.8 prior

Swiss Unemployment 3.2% exp. versus 3.2% prior

France Industrial production %m/m -0.5 exp. versus 0.4 prior

France Manufacturing production %m/m 0.0 exp. versus -0.1 prior

UK Industrial production %m/m 0.3 exp. versus -0.1 prior

UK Manufacturing production %m/m 0.3 exp. versus -0.5 prior

Canada Housing starts 170k exp. versus 156.3 prior

Canada Net change in employment -10k exp. versus -1k prior

US Fed’s Lacker speaks on economic outlook in Florida

US Import price index %m/m -0.6 exp. versus 0.4 prior

US Fed’s Kocherlakota speaks in Minnesota

Keith Underwood No Comments

US March Nonfarm Payrolls Dissapoints

Total US nonfarm payroll employment rose by 126,000 in February and the unemployment rate remained at 5.5%. Job gains continued in professional and business services, health care, and in retail trade. Revisions from the previous months where January was revised down from +239,000 to +201,000 and the change for February was revised from +295,000 to +264,000. With these revisions, employment gains in January and February were 69,000 lower than previously reported. This takes the 3-month average gains to just 197,000 per month, from 288,000 previously and ends the 12-month streak of job gains above 200,000 for the month.

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Keith Underwood 2 Comments

The Fed’s Dual Mandate

Every person that has taken a macro-economic course is aware of the Fed’s dual mandate, but for those that haven’t, a bit of history to get this blog post going. In 1977, Congress amended The Federal Reserve Act, stating the monetary policy objectives of the Federal Reserve as:

     “The Board of Governors of the Federal Reserve System and the Federal Open Market Committee shall maintain long run growth of the monetary and credit aggregates commensurate with the economy’s long run potential to increase production, so as to promote effectively the goals of maximum employment, stable prices and moderate long-term interest rates.”

The dual mandate being consolidated down to maximum employment and stable prices, which equates to approximately 5.35% unemployment rate and 2% inflation. With the economy creating about 260,000 jobs a month and the unemployment rate at 5.5%, the Fed is accomplishing the employment mandate. Unfortunately, the inflation rate is running well below the 2% target rate and, by it’s own admission, the Fed really doesn’t think it will reach that level until 2016, as stated by is most recent economic assessment from December 2014. Their data is below:

We are in the midst of the most dramatic deflationary pressures on the US economy since the 2008 crisis. May I remind you of the effects of dramatically lower oil, a strong US dollar, and tighter money supply had on US CPI?

I am not suggesting that we have negative CPI in our midst, but I can’t ignore the potential for downward pressure on inflation with these powerful forces, once again acting in unison. In 2008 when oil (WTI) fell 69% and the dollar trade weighted index (TWI) soared 20%, CPI dropped from 5.5% to -2%! In the last year, oil is 58% lower and the dollar TWI is 11.4% higher. A back of the envelope estimation is that CPI could drop 3% or 4%? If the Fed acts according to it’s dual mandate, I can’t see how it moves rates higher, while CPI has the historical prospect of falling significantly in the coming months. Yikes!

Next weeks Fed meeting should prove interesting because the world will be watching to see if they remove the word ‘patient’ from their statement, which would signal that they are open to raising (normalizing) rates. While this development, if it occurs, will be seen as opening up the potential to raise rates, it will be difficult for voting members to square with the Fed’s dual mandate and raise rates while inflation is poised to head lower.


Quick, discreet, and so worth the risk.




Keith Underwood No Comments

US February Nonfarm Payrolls

The headline number is that total nonfarm payroll employment rose by 295,000 in February and the unemployment rate nudged down to 5.5% from 5.7% previously. Job gains occurred in food services and drinking places, professional and business services, construction, health care, and in transportation and warehousing. Added to this are revisions from the previous months where December remained at +329,000 and the change for January was revised from +257,000 to +239,000. With these revisions, employment gains in December and January were 18,000 lower than previously reported. This takes the 3-month average gains to 288,000 per month.

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Keith Underwood No Comments

Notable events the week of the 2nd March 2015

Monday the 2nd March:

US Personal Income %m/m 0.4 expected versus 0.3 prior

US Personal Spending %m/m -0.1 expected versus -0.3 prior

US ISM Manufacturing index 53 expected versus 53.5 prior


Tuesday the 3rd March:

RBA – Overnight Rate 2% expected versus 2.25% prior

German Retail Sales %m/m 0.4 expected versus 0.6 prior

Eurozone PPI %m/m -0.7 expected versus -1 prior

Canadian GDP %q/q 2 expected versus 2.8 prior

Senate Banking Committee Hearing on Federal Reserve Reform

US Vehicle Sales 16.7 mm expected versus 16.56 mm prior


Wednesday the 4th March:

New Zealand GDP %q/q 0.7 expected versus 0.3 prior

US Feds Yellen Speaks on Bank Regulation in New York

French Services PMI index 53.4 expected versus 53.4 prior

German Services PMI index 55.5 expected versus 55.5 prior

ADP Employment Survey 218k expected versus 213k prior

Fed’s Evens Speaks on Economy and Monetary Policy in Illinois

BoC Overnight Rate 0.75% expected versus 0.75% prior

US ISM Non-Manufacturing index 56.5 expected versus 56.7 prior

Fed’s George Speaks on Economy in Kansas City


Thursday the 5th March:

German Factory Orders %m/m -1 expected versus 4.2 prior

BoE Monetary Policy Committee meeting and rate decision – no change expected from 0.5%

US Initial Claims 295k expected versus 313k prior

Canadian Ivey PMI index 49 expected versus 45.4 prior

Fed’s Williams Speaks on Economic Outlook in Honolulu


Friday the 6th March:

US Nonfarm Payrolls m/m change 230k expected versus 257k prior

US Unemployment Rate 5.6% expected versus 5.7% prior

US Average Hourly Earnings m/m change 0.2% expected versus 0.5% prior


A Currency Affair

Quick, discreet and so worth the risk


Keith Underwood No Comments

Notable events the week of the 9th February 2015

Monday the 9th:

Japanese consumer confidence 39.3 expected versus 38.8 prior

France Business sentiment 97 expected versus 96 prior

Canadian housing starts 184k expected versus 180.3k prior


Tuesday the 10th:

UK BRC Retail sales monitor (%y/y)  0.7 expected versus -0.4 prior

France Industrial production (%m/m) 0.3 expected versus -0.3 prior

UK Industrial Production (%m/m) 0.1 expected versus -0.1 prior

UK Manufacturing Production (%m/m) 0.1 expected versus 0.7 prior

US Fed’s Lacker (voting hawk) to speak on the economy in North Carolina


Wednesday the 11th:

US Fed’s Fisher (non-voting hawk) speaks at The Economic Club of NY

Japan Key Machinery Orders (%m/m) 2.3 expected versus 1.3 prior


Thursday the 12th:

Eurozone Industrial Production (%m/m) 0.2 expected versus 0.2 prior

German HICP (%m/m) -1.3 expected versus -1.3 prior

US Initial claims 287k expected versus 278k prior

US Retail Sales (%m/m) -0.4 expected versus -0.9 prior


Friday the 13th:

French GDP (Preliminary) %q/q 0.1 expected versus 0.3 prior

German GDP (Preliminary) %q/q 0.3 expected versus 0.1 prior

US University of Michigan Sentiment index 98.1 expected versus 98.1 prior

Fed’s Fisher (non-voting hawk) speaks in San Antonio