Beige Book Freezes Markets with Gold and Silver Stalling

After the release of the Federal Reserve’s 12-district, July-August “Beige Book,” one might have expected a strong upward movement in gold and silver. That was not to be.

Instead, we saw mild profit-taking combine with a slightly higher U.S. dollar to pressure the precious metals. On the equities side, the reaction was also essentially one of lethargy.

The Dow Jones Industrial Average and S&P struggled to get into the green but have failed as of 4PM in New York.

The NASDAQ has been trading just in the green, completely unfazed by Apple’s new-product launches. Overall, consumer staples dragged on stock prices, with agricultural commodities and finished food products showing little or no growth in prices nor consumption.

Crude oil in the form of West Texas Intermediate looked strong today, despite the higher greenback. It settled up 1.50% but has fallen back a touch in later trading. Brent North Sea performed about the same.

The Beige Book showed that growth in the U.S. is modest, moderate, slow to medium, quiet but expanding, etc., etc. This leads us to the Federal Open Market Committee’s meetings in September and December.

Wage pressure is scant. Inflation pressure is negligible. There is a skilled labor shortage, which should raise salaries. (College grads over 25 years of age have a 2.1% unemployment rate.) Housing is slowing because a labor shortage is impeding building of new homes. Demand for credit is sluggish but persistent.

That adds up to no rate hike in September, unless enough theoretical thinkers override the pragmatists. There probably will be no rate rise in December either unless somehow Inflation breaks out like a raging bull.

Retail, tourism, commercial real estate and public works are bright spots. Manufacturing was slow but because of better import controls, American steelmakers are starting to see better profits.

Richmond and New York noted strong growth in industrial construction, and vacancy rates for industrial space fell to 10-year lows in the latter District. Commercial leasing activity strengthened in New York, Richmond, and San Francisco, but grew at a softer pace in Philadelphia, where contacts described the market as in a "lull, not a retreat." 

This all takes us to another day of digesting data. And we better digest it well, because we don’t have much except weekly data coming before the FOMC meeting on the 20^th and 21^st.

Oddly enough, the CME FedWatch tool showed the probability for a rate increase climbed upward a tiny bit today, moving to an 18 on the probability scale from yesterday’s 15 on a scale of 100.

The VIX volatility gauge dropped under 12 on the day. The gauge seems very comfortable right now between 11 and 14. Of course, that tells us we probably will not be seeing any substantial price moves except on external, temporal news like wars, energy disruption, or natural disasters.

Wishing you as always, good trading,