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19Aug2015 Market Close: FOMC Minutes Dovish And Wait And See, Crude At Lows Not Seen Since 2008 And Falling, Markets To Follow Oil Prices

Written by Gary

We didn't quite get the radical volatile market movements predicted with the release of the Fed's minutes, but the U.S. dollar rallied sharply after the Fed's report, then dropped 0.60 cents where it paused from its lows (96.40) and appears to be falling again. Oil bottomed out at 40.97 and has paused for the day, but oil aficionados expect to see 39 within days. The averages climbed back up to opening prices, but started to fall sharply at 2:15 as investors are obviously not pleased with the Fed, China and the fall of crude prices. The markets closed sharply down weighed on by the energy and materials sectors.

Todays S&P 500 Chart

Apparently the Fed's minutes were 'leaked' approx 20 minutes ahead of schedule as that coincides when market movement began. According to many analysts the Fed's minutes are pretty dovish and very much point to a "wait and see" attitude towards raising rates, so we wait again despite bets for a September liftoff.

Depending what charts you look at (SPY, SSO, Nasdaq) and how you care to interpret them, there are red candles at the close which could mean more downside in the making or a reversal in direction, BUT crude prices will ultimately dictate the path make no mistake about that. The averages have retreated from the 200 DMA and closed below the 145 DMA and there may be another test tomorrow of the 200 DMA. Currently, I see more downside (oil and markets), but just how much is always the elusive question.

We remain bearish on crude and bullish (higher prices) on consumer petroleum distillates (gas at the pump).

The Market in Perspective

Here are the headlines moving the markets.

Germany backs Greek bailout as Tsipras mulls early polls

BERLIN/ATHENS (Reuters) - The German parliament approved a third bailout for Greece on Wednesday after Finance Minister Wolfgang Schaeuble said the country should get "a new start", while in Athens the government agonized over whether to call a snap election.

Glencore Finds Cash but Not Comfort

The miner and commodities trader produced extra cash flows in the first half of the year. But concerns around its business model, earnings power and balance sheet remain.

The Path To Rate Normalization Will Not Come Without Pain

Via Scotiabank's Guy Haselmann,

Beating the Long Bond Drum

Buy long-dated Treasuries. In February 2014, I predicted the 30-year Treasury yield would drop below 3%. Later in the year I predicted it would "drop below 2.5%, possibly even trading below 2.0%" ("a one-handle"). I have been writing recently that I believe that the 30-year Treasury will take another run at sub-2.5% (and possibly sub-2.0%).

Is it possible that global indebtedness has reached its practical limit? New issuance concessions are growing. The three decade era of credit expansion might be coming to an end. Vast quantities of accumulated indebtedness means future economic growth will face a formidable headwind. With interest rates at zero and balances sheets bloated, central banks' desire to pursue 'growth-at-any-cost' may no longer be possible.

Excessive monetary accommodation over the past seven years was the primary tool used to deal with the excessive debt levels which characterized the 2008 crisis. The idea was to expand aggregate demand (GDP) such that revenues would grow enough to pay down the debt. Unfortunately, the amount of economic growth expected to be generated from easy policies fell short of expectations.

The convenient excuse for the large shortfall in economic growth calculations is to say that the crisis was deeper and longer-lasting than anyone anticipated. An equally plausible explanation mentioned by FOMC members is that the consequences of the experimental measures of pushing interest rates down to zero and buying $4 trillion of assets are poorly understood.

Here we are today with the large debt levels that characterized the 2008 crisis having not decreased (actually, aggregate indebtedness is far larger ...

Wall St. down in volatile trading after Fed minutes

(Reuters) - U.S. stocks fell in choppy trading on Wednesday as minutes from the July Federal Reserve meeting confounded traders' expectations of an interest rate hike.

Airline fares dampen U.S. consumer prices in July

WASHINGTON (Reuters) - U.S. consumer prices rose only slightly in July as airline fares recorded their biggest drop since 1995, but tame inflation pressures will probably not discourage the Federal Reserve from raising interest rates this year.

Copper Breaches $5000, Breaks Below 15-Year Trendline

While the PBOC was literally everything in its power to keep the Shanghai Composite above its 200-day moving average as some sign of 'stability', it forgot about that other proxy of overall Chinese economic health: copper. And just as we warned previously, ever since the CCFD crackdown in 2012, copper has been tumbling and more crucially has just broken a 15-year trendline.

As we explained last year, Copper faces a double whammy that is only just starting to be realized...

Metals and mining commodities - including the base and bulk commodities, steel and cement - are highly exposed to a slowdown in the Chinese property, with over 40% of Chinese demand for cement and copper in particular consumed in the construction sector. The recent slowdown in Chinese property sales, prices and early-cycle new starts has most impacted physical demand for (and sentiment towards) commodities exposed to the earlier stages of China's construction cycle - steel and iron ore - which have underperformed commodities more exposed to latter stages of the construction cycle, such as copper. However, as the recent slowdown in new starts flows through to late-cycle, copper-intensive construction completions, we expect copper to come under fu ...

Lowe's sales beat on demand for appliances, outdoor equipment

(Reuters) - Lowe's Cos Inc , the No.2 U.S. home improvement chain, reported stronger-than-expected growth in quarterly same-store sales as customers bought more expensive items in categories such as appliances and outdoor power equipment.

Target's quarterly sales outlook disappoints; shares dip

CHICAGO (Reuters) - Target Corp forecast disappointing sales for this quarter and said it expected consumer demand to remain choppy, causing its shares to give up early gains.

Bloomberg Statement On "Inadvertently" Breaking Fed Minutes Embargo

As we first noted, nearly half an hour before the official release time of FOMC the minutes, Bloomberg broke the embargo by blasting a headline to subscribers...

Jesus embargo broken

zerohedge (@zerohedge) August 19, 2015

Just out from BBG: MOST FED OFFICIALS IN JULY SAW CONDITIONS FOR RATE RISE NEARING

— zerohedge (@zerohedge) August 19, 2015

... which, due to its hawkish tone, send yields higher before everyone else joined in in breaking the embargo and showing that the broader context was really far more dovish than expected leading to the jump in stocks.

So what happened? This is what a Bloomberg spokesperson said: "In the process of preparing embargoed material we inadvertently sent a headline ahead of the embargo."

Well, with HFTs legally frontrunning everyone else, and the Fed admitting it openly leaked minutes at least once a full day before the official release, one can probably say that in the grand scheme of things this was an improvement.

Job growth edged Fed toward rate hike, inflation a drag: minutes

WASHINGTON (Reuters) - An improving job market edged the U.S. Federal Reserve closer to an interest rate hike at its July meeting, but policymakers continued to fret that lagging inflation and a weak global economy posed too big a risk to commit to a "liftoff," according to minutes released on Wednesday.

10 Reasons Why The Fed Won't Raise Interest Rates

Submitted by @RampCapitalLLC via 330Ramp.com,

1. China Hard Landing - Last week China decided to devalue their currency which brings into question the strength of the global economy.

2. Football - With football season kicking off, there are a lot of Fantasy Football lineups to be filled out. Paying attention to the draft is much more important than a 0.25% rise in short term interest rates.

3. Off The Highs - The market has been range bound almost the entire year. The S&P 500 recently had a couple of brief scares below 2100 but Janet (Yellen) is looking for 2150-2200 before a rate hike can even be put on the table (Update: $SPY just went below 200DMA). The US equity market is currently in the 3rd longest bull market ever. Janet will not settle for anything less than gold (which is now also worthless).

4. The Plague - With a couple of cases of people catching The Plague in California and Colorado, Janet doesn't want to further sicken the market by raising interest rates. See last year's Ebola scare.

5. Commodities and Inflation - Prices of most commodities have been hammered the past few years (still waiting to see this tax cut passed on to the consumer). This weakening of commodity pricing could be bad news if it is a sign that global demand is also weakening. The Fed has also been keeping their eye on inflation (deflation), but we haven't hit the magic 2% inflation target since 2012.

JPMorgan, Goldman Sachs, Morgan Stanley to form data company: WSJ

(Reuters) - JPMorgan Chase & Co , Goldman Sachs Group Inc and Morgan Stanley are working to create a company that will pull together and clean reams of data used to determine pricing and transaction costs, the Wall Street Journal reported.

Fantasy Football Sacks Productivity

by Challenger Gray and Christmas

As fantasy sports and, more specifically, fantasy football continue to grow in popularity, so might the financial impact on the nation's employers. However, companies should not crack down on workers managing their teams at the office, but instead embrace the fantasy fanaticism.

Stocks Soar Into The Green As Question Emerges: "Rate Hike Or QE4 First?"

It appears that the Fed's cunning plan to hike rates so it can cut rates was just foiled once again.

Moments ago stocks have soared into the green for the day in an epic algo stop run as 'traders' weigh the words amid the FOMC Minutes. The crucial sentence is "The risks to the forecast for real GDP and inflation were seen as tilted to the downside, reflecting the staff's as-sessment that neither monetary nor fiscal policy was well positioned to help the economy withstand substantial adverse shocks." This suggests the possibility of a monetary reaction (QE4) if external shocks occur even before they have had a chance to raise rates.

Here is a sample of the litany of FOMC notices that suggest that far from a rate hike, the US economy is more likely to see QE4 first!

Some participants also dis-cussed the risk that a possible divergence in interest rates in the United States and abroad might lead to further appreciation of the dollar, extending the downward pres-sure on commodity prices and the weakness in net ex-ports

* * *

The risks to the forecast for real GDP and inflation were seen as tilted to the downside, reflecting the staff's as-sessment that neither monetary nor fiscal policy was well positioned to help the economy withstand substantial adverse shocks

* * *

a few participants observed that although GDP growth appeared to have picked up in recent months rel-ative to the first-quarter pace, the level of GDP re-mained lower than had been projected earlier in the year

29 July 2015 FOMC Meeting Minutes: Continued Jawboning On When to Raise Rates

Fed-sealSMALLEconintersect: The 29 July 2015 meeting statement presented the actions taken. This post covers the economic discussion during this FOMC meeting between the members. The was a significant amount of discussion when to raise the federal funds rate: The quote of these minutes was:

... participants mentioned a number of considerations associated with the timing and pace of policy normalization. Most judged that the conditions for policy firming had not yet been achieved, but they noted that conditions were approaching that point.......

Since this meeting, China adjusted its exchange rates - and many of the observations on business are contradicted by survey results.

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To contact me with questions, comments or constructive criticism is always encouraged and appreciated:

gary@econintersect.com

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