Give me a sign

Give me a sign.  Stocks pulled back slightly yesterday as investors await some direction from the Fed.  A pile of confusing statements by the President left traders scratching their heads wondering if what he said was good or bad for stocks.




  1.  The ball is back in Jay’s court.  Markets have been pensive ever since the Fed’s last FOMC meeting at which the committee lowered interest rates by 25 basis points.  The move was largely expected with many secretly hoping for a 50 basis point cut.  OK, so 25 basis points for now should be good enough to keep investors feeling safe, right?  Not so fast.  In the Chairman’s speech he refereed to the move as a “mid-cycle policy adjustment”, which means that the move was not necessarily the beginning of an easing cycle.  Oops, the markets didn’t want to hear that, let alone the President who has been relentlessly bullying the Chairman ever since.  The move is now referred to as a hawkish rate cut.  Today, we will get to glimpse at the minutes from the meeting that preceded the policy move and see if it was just a poor choice of words on the part of Powell or if the committee actually feels that more stimulus is not necessarily required.  On Friday, Chairman Powell will give a speech at the Fed’s annual Jackson Hole symposium and all eyes will be on him for some hints.  I have been writing a lot about the dangers of responding to statements out of Washington, which are intended to confuse and prop up stock markets.  The Fed is the exception to the rule.  The Fed has a long history of prompting investors through careful selection of its public statements.  In fact, some analysts have made a career of being avid Fed watchers.  So something as mundane as a late summer’s Friday speech given by the Federal Reserve’s Chairman on “The Challenges of Monetary Policy”, can be a big deal for markets.  What can we expect to hear from Powell?  Considering everything that has occurred since last month’s FOMC meeting, namely negative PMI’s across the EU, increasingly slowing growth from China, foreign central bank rate cuts, and the US yield curve flattening, the Chairman will likely tint his speech with a dovish tone, possibly walking back on his “one and done” statement from last month.  Market’s are looking for just that and anything short of it will most likely result in displeasure… or volatility.  It seems like the President is considering some fiscal policy based on statements he made yesterday.  On the table are potential payroll tax cuts and possibly even some sort of cut to capital gains taxes.  No details, just a statement.  He also mentioned that we are far away from a recession while simultaneously urging the Fed to cut rates by 100 basis points (that’s 1 full percentage point) and to resume quantitive easing.  The markets’ reaction was muted indicating that investors want to hear from the Fed.


  1.  Things that make you go “hmm”.  I have been writing about low and negative yields for some time.  It has become somewhat of a hot topic especially in the wake of the US 30-year treasury bond closing below 2% for the first time ever last week.  Negative yielding bonds have been increasing over the past several years as investors clamor to find safe havens for their assets during a shaky economic regime.  The high demand pushes bond prices up thus lowering yields.  The EU is an interesting place in which many different sovereigns are tightly attached in a large trade alliance with common administration.  Though there is a European Central Bank, each sovereign nation has its own bourse and issues its own sovereign debt.  It is because of this construct that you see an interesting dichotomy across bond offerings.  The EU economy has been slowing and there are signs that it could possibly slip into a recession.  As a result, member countries that are poor performers suffer and their bonds sell off driving yields up while better performers’ bonds go up as investors rush into safe harbors.  This morning WHILE YOU PRESSED SNOOZE , Germany offered its first 30-year bond at 0% (that is not a typo).  The auction received tepid demand but still managed to settle with a yield of -0.11%, so investors will pay the German government to hold their money for 30 years.  In contrast a 30-year bond from Italy is yielding 2.4%!  Not good enough for you?  A Romanian 10-year note (yes they are part of the EU) will yield you 4.15%.  Hmm.




Stocks broke a 3-day winning streak as investors await some word from the all-powerful Fed.  The S&P500 slipped by -0.79%, the Dow Jones Industrial Average dropped by -0.66%, the Russell 2000 sold off by -0.72%, and the NASDAQ Composite Index traded down by -0.68%.  Bonds were on the climb again with 10-year treasury yields falling by -5 basis points to 1.55%.  For reference the 30-year bond settled at 2.03% yesterday, which is downright juicy compared to Germany’s 0% 30 year bonds.




– This morning we will get Existing Home Sales from the National Association of Realtors and estimates have sales growing by +2.5% month over month compared to last months drop of -1.7%.

– The long-awaited FOMC meeting minutes will be released at 2:00 PM EST.

– Minneapolis Fed President Neil Kashkari will speak.

– Lowe’s, Target and Analog Devices all beat earnings before the bell.  After the bell earnings include Nordstrom and L-brands.

daily chartbook 2019-08-21


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