2016/08/26 Commentary: Fed-ticipation II
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COMMENTARY (Non-Video): Friday, August 26, 2016
As explored in Wednesday’s original Fed-ticipation post, the reason for many market participants frustration as well as the stagnant trend activity this week is Fed-ticipation. That’s the attempt to understand what the US Federal Reserve is likely to do next... and when. The term is a pun on the old Carly Simon song Anticipation. While the overall topic of the song is on a wholly different aspect of interpersonal relations, the refrain has a very interesting couple of lines that relate to the current frustration with a Fed whose minions seem to be on so many sides of the rate hike fence that they don’t know where the fence is anymore. For more on that see Wednesday’s post.
The Fed-ticipation refrain parody of Simon’s tune is only the substitution of the title word, as in Fed-ticipation, Fed-ticipation, “Is makin' me late, Is keepin' me waitin'.” Little doubt some who have worried about a Fed hike have been late to the bullish equities party, and that the Fed has kept us all waiting endlessly for much touted rate hikes. Keep in mind that at the time of the December rate hike there were supposed to be four of them this year.
And now all of that is supposed to be clarified this morning by the missives from Janet Yellen at this year’s annual KC Fed Jackson Hole Policy Symposium. At 10:00 EDT she will espouse on “The Federal Reserve’s Monetary Policy Toolkit.” And of course, that will not merely be an academic exercise. It will be heavily scrutinized for hints on whether the Fed will be raising rates in September or as a last ditch gesture in December. Yet whether she will remain more dovish than her hawkish Fed cohorts is more problematic than ever.
While some US economic data has strengthened markedly (Employment and latest Durable Goods Orders), just this morning we were reminded that US Q2 GDP weakened as expected to only 1.1%. And offshore data showed Japanese inflation numbers slipping again this morning after very weak Euro-zone Consumer Confidence and German IFO earlier this week. So we have some sympathy for Chair Yellen, as she pays more attention than her fellow Fed members to the real international drags on the US economy. And it is hard to be the only central bank tightening when all the rest are still easing. That especially applies to the potential US dollar impact.
Our guess is that she will once again cite the US economy as a reason to lean toward raising rates, yet remain more circumspect than her peers based on the international influences. That will mostly eliminate the potential for a September rate hike, yet leave the potential for a December hike (just one of the four proposed last December.) The markets response will of course also be the most important aspect. Equities and govvies have both weakened in anticipation of a more hawkish sentiment. Yet the September S&P 500 future has held its 2,175-70 support (Tolerance 2,165.) US dollar has also strengthened a bit on that sentiment, especially against emerging currencies that fear a Fed Hike.
And that’s it. Short and sweet in front of Chair Yellen today, with all of the overall background and extended Market Observations (in the lower section for Gold and Platinum subscribers) still much the same as Wednesday’s original Fed-ticipation post. Please refer to that and/or Thursday morning’s brief update email for the background and especially the full Evolutionary Trend View explored in those Market Observations.
Thanks for your interest.