Quick Comment on Today's Action

I know, I'm out of the office, but, good or bad, I presently have a connection :)!

I just scribbled (so to speak) the following into my market diary. Thought you might find it interesting, because -- only for this very moment -- it might help put the noise of the week into its proper market perspective.

After this, I should be leaving you alone for the next couple of days. But don't hold your breath :)

8/16/17

Fed minutes released today show a divided board… Doves cite inflation (lack thereof) as reason to go easy on rate hikes going forward. Hawks cite full employment, etc., as obvious clues that inflation will rise and it would be wise to stay out in front of it…

Given the market’s response, clearly, it sees the doves in control for now… Fed funds futures dropped from discounting a 45% chance of hiking in December, to 36%... Gold rallied $5 initially, bonds rallied as well with the 10-yr treasury yield declining by 3 bps.

As for stocks, they’re essentially unmoved, and the VIX remains down 3% on the day… Thus, the move in gold and bonds either doesn’t reflect fear, or is at complete odds with stocks. CDS spreads are tame; suggesting that the move in bonds and gold simply reflects a sense that interest rates will stay lower for longer. Or, that is, short-term traders thinking that investors are sensing that. 

My guess is that the relatively strong macro backdrop will continue to support the inflation’s-ultimately-coming narrative and the longer-term trend will remain bearish for gold and bonds.

I always find the market’s reaction to weeks-old fed minutes interesting. I.e., “it” tends to take that commentary seriously, despite the plethora of data and Fed commentary that occurred between the meeting and the release of the minutes. With regard to that, I’d say the data, and trading action (notwithstanding today’s) suggests the evidence since the meeting points to justified hawkishness going forward.

As I finish up, a headline crosses the screen “S&P 500 Erases Gains After Trump CEO Backlash”… That may be, but that’s been the story for a couple of days, dramatically this morning, and while the Dow did come down off of an 80ish point high – down to 40ish – the move to zero change on the day just occurred. Whether that’s Trump, the Fed or any other of the uncountable factors that could move the market, the VIX (volatility [aka “fear”] Index) remains tame... at least as I type... Oh, and by the way, a mere double-digit Dow move, in one direction or the other, is an absolute non-event...

Lastly, our foreign exposure is up strongly across the board today. That, I suspect, reflects the prospects for a lower dollar (in a lower [interest rates] for longer U.S.)... not to discount the on balance good macro news out of Asia and Europe of late...