T3’s Take 3: Did the Fed Go Too Far?
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1) Did the Fed Go Too Far?
If you've been following financial markets in any serious way, than you know that Fed officials, including FOMC Chair Janet Yellen, have been out in force getting the market ready for rate hikes.
I now wonder if they went too far.
Today, we saw disappointing Labor Market Conditions, ISM Services, and IBD/Tipp Economic Optimism.
These were just the latest in a string of disappointing US economic data.
Here is a chart of the Citi US Economic Surprise Index, which measures the strength of economic data relative to market expectations:
As you can see, the trend turned decisively down in late July, when a disappointing second-quarter GDP report was released.
Now, traders are pricing in a 51% chance of a December rate hike, down from 60% on Friday.
2) Gold Screams!
With traders losing faith in the Fed's willingness to raise rates, precious metals put in a repeat performance of Friday's post-NFP rip.
Gold rose 2.0% to $1353.90/oz, while the gold miners ETF (GDX) rose 4.4% to $28.56.
Meanwhile, the US dollar fell hard against the yen and euro, and my colleague Kurt Capra is making the case that the dollar weakness could continue.
I'd also consider reading Jeff Cooper's recent work on gold.
3) Stocks: More of the Same
The S&P 500 hasn't made a 1% move since July 8, and today was more of the same.
We still see pockets of volatility in areas like precious metals, biotechnology, and energy, but the broader markets are still going nowhere.
The S&P rose 0.2% to 2173.81, with the Nasdaq doing slightly better due to strong action in biotech.
Perhaps we'll see some movement on Thursday, which has both the European Central Bank rate decision and US crude oil inventories.
But with volatility at 2-year lows, I'm not holding my breath!
Wednesday's Trading Calendar
US Economics (Time Zone: EDT)
07:00 MBA Mortgage Applications (9/2): 2.80%
10:00 Fed's Lacker and George Appear before House Financial Panel
10:00 JOLTS Job Openings (Jul): 5625 5624
12:00 DOE Short-Term Crude Outlook (Sep): 51.58
12:00 DOE Short-Term Mogas Outlook (Sep): 2.26
12:00 DOE Short-Term Diesel Outlook (Sep): 2.7
12:00 DOE Short-Term Ht Oil Outlook (Sep): 2.6
12:00 DOE Short-Term NatGas Outlook (Sep): 10.66
14:00 U.S. Federal Reserve Releases Beige Book
Global Economics
03:00 CHF Foreign Currency Reserves
03:30 GBP Halifax HPI m/m
04:30 GBP Manufacturing Production m/m
09:15 GBP Inflation Report Hearings
10:00 CAD BOC Rate Statement
19:50 JPY Final GDP q/q
21:30 AUD Trade Balance
Earnings
Before Open:
None of Significance
After Close:
FuelCell Energy (FCEL)
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