August 22nd, 2012
in Gary's blogging
Closing Market Commentary For 08-22-2012
The afternoon HFT traffic was quite choppy and melted the averages up a few points as the DOW remains in the red while the SP500 squeaks out a green position of a few cents. The $RUT leads the pack down but off its low point of the day. I am not sure just how the FED's minutes today could make anyone happy as they sprinkled the markets with more bull crap as they have done for the past several meetings.
These past few market sessions have seen little human traffic although it appears there was some buying on the Fed's news. I am not sure I buy the Fed's malarkey and double talk, but some are obviously. The smell from the Fed speak is overwhelming and I am not buying any of it. Until I see more volume in these markets, I place very little faith in the averages sustaining any further movement upwards.
Members of the Federal Reserve’s policy-setting committee pared back their expectations for short-term U.S. economic growth as a result of tepid consumer spending and employment growth, Federal Open Market Committee minutes reveal. The FOMC warned that a potential intensification of the European debt crisis and the looming fiscal cliff also present ‘significant downside risks’ to the outlook. As such, the FOMC considered new policy options, including a large-scale asset purchase program and the extension of the Fed’s low-rate pledge to jump-start the economy.
@CVecchioFX do you really think the Fed would not have had advance notice of what NFP's were likely to do? (answer: Yes, they did).
“Bottom Line- QE is the Biggest Gun the Fed Has. . . What's going to happen if we Really Do Start to Face the Threat of a Double Dip???”
“I think the Fed needs to put more pressure on Congress to create incentives. Monetary policy is a blunt instrument and can't fix everything.”
“I still think the Fed has done enough. We need fiscal reforms & incentives to assist the recovery.”
“Wish we could fastfoward to the next stimulus delivery where its scope completely disappoints. Like a skateboard for a teen expecting a car.”
“Things have settled back down but mkts unstable. We have the HSBC Flash PMI and Leading Index tonight, Eurozone PMIs in Euro session.”
“No wonder we've had the Fed hawks talking about how inappropriate more stimulus is going forward. Makes sense knowing the board consensus.”
FOMC Minutes Indicate No Shift In Fed's Views, Even As Many Members See More Easing Likely Warranted
The thoughts of the FOMC from a mere three weeks ago - before a 30bps rise in 10Y yields (40bps in 30Y), 5% rise in the NASDAQ, 8.5% rise in AAPL, and 85bps compression in Spanish bond spreads - are out. It appears little has changed in their muddle-through, always at-the-ready, wish-it-were-better view of the world. Via Bloomberg,
*FOMC PARTICIPANTS SAW ECONOMY DECELERATING AFTER JUNE MEETING
*MANY FOMC PARTICIPANTS SAID MANUFACTURING WAS SLOW OR FALLING
*FOMC PARTICIPANTS DISCUSSED QE, EXTENDING 2014 FORECAST ON RATE
*FED STAFF SAID MARKETS HAVE LARGE CAPACITY TO HANDLE MORE QE
*MANY FOMC PARTICIPANTS SAW NEW QE AS BOLSTERING U.S. RECOVERY
*MANY ON FOMC FAVORED EASING SOON IF NO SUSTAINED GROWTH PICKUP
Translation: "Many on FOMC want the S&P at all time highs without actually doing any QE, ever, because that will mean the Fed is officially out of bullets."
The RRR** continued to be very narrow all day and any trading would have been unprofitable. Swing trading is at your own risk and since the market is at a crossroads of sorts, I would prefer to sit on my hands rather than risk guessing incorrectly.
The DOW at 4:00 is at 13172 down 30.82 or -0.23%.
The 500 is at 1413 up 0.32 or 0.02%.
The $RUT is at 812.56 down 2.80 or -0.34%.
SPY is at 141.89 up 0.13 or 0.09%.
The trend is neutral and the current bias is neutral.
WTI oil is at 97.32 trading between 97.55 and 96.25 and the bias is neutral.
Brent crude is at 115.03 trading between 115.25 and 113.55 and the bias is neutral.
Gold is at 1654.76 trading between 1655.30 and 1644.98 with a positive bias.
Dr. Copper is at 3.48 up from 3.43 earlier.
Earlier the USD tumbled from 82.13 to 81.46 and is currently down at 81.56.
The 500 at the close.
The DOW at the close.
Juncker has warned that this is Greece's last chance. Strong words.
Greece has to put in place structural reforms, he says, and their priority needs to be consolidating their finances. As for a third bail-out package, he's not willing to talk about that at this time - but he's not "in favour" of the idea. And giving Greece more time to implement austerity measures? That will have to wait until the troika report back, he says.
"Prolonged economic weakness will persist - especially in the peripheral countries - with further periods of intense financial market stress" is how Citi's Willem Buiter's economics team sees the future in Europe.
While they continue to believe that the probability of a Greece exit from the Euro is around 90% in the next 12-18 months; but more critically it is increasingly likely in the next six months - conceivably as soon as September/October depending on the TROIKA report.
There is a crucial series of meetings and events in coming weeks and while they believe that the ECB's conditional bond-buying (and ESM/EFSF) may help avoid a 'Lehman moment' around the GRExit, they believe that there will still be considerably capital flight out of periphery assets should it occur.
The reason being simply that even if funding costs were reduced, the current mix of fiscal austerity and supply-side reform will not return any periphery country to a sustainable fiscal path in coming years.
** RRR = Risk Reward Ratio
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Written by Gary