Today begins the Federal Open Market Committee (FOMC) gathering of Federal Reserve officials that will end in a decision tomorrow, which will move financial markets around the world, including the U.S. dollar.  Now, that trade has become a hot-button issue and the notion of China and other foreign nations manipulating their own currency as America looks on haplessly might sway the election in November. However, there needs to be clarity as all nations manipulate their currency, including America.

Sometimes foreign nations actually try to move their currency higher- even China.

For the record, there is no doubt that China’s push to make the Yuan cheaper against the dollar helped to fuel its hyper-growth over the past three decades plus.  Yet the dollar peaked against the Yuan at 8.64 ratios in 1994, and came down dramatically until 2014.  Even more intriguing is the fact China spent $500.0 billion last year to prop their currency higher; not lower, including $108.0 billion in December.

Yuan vs. USD  

1981: 1.71
1994: 8.64
2014: 6.16
2016: 6.60 (top)

The problem for China is that the nation has become a victim of its own success. The creation of so much wealth means a lot of individual billionaires are not eager to watch their wealth be destroyed by any currency gains.  They have funneled billions out of the country, often into luxury apartments in Manhattan (sometimes in exchange for U.S. citizenship), local real estate, and 11 million hectares of land in Australia (1% of total land) for $371 million last week.

To illustrate how tenuous the situation has become; yesterday, China offered an estimate on how much capital would flee the country this year- $538 billion.  That would be an improvement; $674 billion that fled in 2015 (and that’s the official number).  In March, only $35 billion left and year-to-date, only $175 billion.

The dilemma is rich indeed.  Rich American companies want China’s currency to pullback a little more, whereas the rich Chinese would like to see it stabilize higher.

No U.S. president can stop other nations from manipulating their currency, and we will not give up the right to manipulate ours; certainly, the Fed will not give up that role.  On that note, we are modeling for more dollar weakness this year, and just one more rate hike from the Fed.  Yesterday, a well-known market guru (I guess that’s what they call those guys that always make the big calls, but never have to be correct) guessed the Fed might hike rates tomorrow or in June- both guesses were news flashes to the Street.

The Fed isn’t hiking rates tomorrow, and I am sure it’s not going to happen in June either.

China Connection

The trade situation with China amounts to 1% of the U.S. Gross Domestic Product (GDP), but it’s the jobs and the impact of the stock market that rarely is discussed and it should be included.

Meanwhile, we need to make sure the desire to punish China doesn’t destroy our 401Ks.  China’s stock proxies include Apple (AAPL), Yum (YUM!), and Caterpillar (CAT), which has been under serious pressure and has slipped more than a percent yesterday despite an upgrade from Goldman Sachs (GS).

Big names are reporting today. The market could go either way, but bias is back to the upside; yesterday’s resolve speaks to money-eager-buyers to buy dips.

Today’s Session

Earnings are pouring in, and thus far, it is a mixed bag at best with a few disasters and most misses associated with the strong dollar.  Several of our ideas have posted results and initial assessments and alerts will be out shortly.

Big business is still playing it all close to the vest as durable goods orders in March increased just 0.8% versus consensus of an increase of 1.7%.  Core business investment was $68.7 billion or unchanged from February.