September 8, 2015

September 8, 2015 Focus is on the Fed Today's market bounce is gratis China. Over the past several weeks, since China devalued its currency, we've said that this is an economy, market, and currency manipulated by the government. If Trump thinks China is smarter than the US, then it must be because he thinks that communism is better than democracy, because China's successes (and failures) are because they can manipulate every component on the economic system. Today's rally is on hopes that China will inject another dose of monetary policy stimulus in order to weaken the Yuan. China's central bank reported that its reserves fell $93.9 billion in August in an effort to prevent the Yuan from falling further after its currency devaluation. China is installing circuit breakers to stop panic selling in its markets. Just remember, China is a manipulated economy. They may get it wrong for a while, over compensate for too much growth with too much pressure on the breaks, but they aren't going to let the economy fall into a massive recession. This is what we are seeing today, a little intervention to let the world know, they got this. Eurostat revised some of its growth estimates for the first and second quarter for the Eurozone slightly higher. While we wouldn't call the revision "upbeat", it's perhaps a little less "downbeat" than previously thought. Add this to Germany's trade surplus, a record $25.6 billion in July. This supported an upward revision to 2nd quarter GDP estimates. This news suggests that Europe is hanging in there, despite some of the disruptions out of China. European markets rallied over our holiday and into today's session, with German adding another 1.6%, and most of Europe up better than 1.0%. Since the big market collapse in August, we are seeing some consolidation, as global markets calm down from the volatility of August. Now the focus shifts to the FOMC meeting on the 17th. In a way, the market might be better off if the Fed just moves the 25 basis points in September and takes a rate increase off the table until the end of the first quarter of 2016. It's the "uncertainty" that is killing the market. While we may not "need" a rate hike just yet, and the impact on the Dollar would be counter intuitive, It appears to be priced into the Euro at this level. I don't think we see a threat of breaking 1.09. Therefore, making the move would only solidify the base in the European currency. The employment data is clearly where it needs to be for a rate hike. The inflation component is down because of weak commodity, material, and petroleum prices. These are volatile components and could easily tick higher quickly, causing inflation to appear out of control. Message to the Fed, take the step now. Even if oil rallies and inflation fears resurface, the fact that the Fed moved will alert the inflation hawks that the Fed is on it. Technically, the "test" of the spike low held at the Tuesday lows thus far. Acknowledging the turn requires a close above the "intervening high" on the various indices. Therefore, we need a Dow close above 16670, S & P above 1994, and the NASDAQ above 4837. It is very doable, although investors may want to see the FOMC meeting first, which will serve to expand the base. An interesting note is that Fibonacci 21-day moving averages are all right about at these levels, adding to the technical resistance and the significance of a close above these levels. I expect September to resolve to the upside and the focus to shift to the consumer in Q4, which will be a positive through year-end. S&P 500
This entry was posted in Market Review. Bookmark the permalink.

Leave a Reply

Your email address will not be published. Required fields are marked *