Energy Cast As The Villain But It Is Really Jitters Over The Fed Pushing Markets Around

If you were to have had a long, long nap yesterday afternoon and just now woke up and began monitoring today’s financial news, you would be forgiven for thinking it was still Tuesday.

That is to say, not much seems very different except for the U.S. dollar, which fell against “commodity currencies” like the Norwegian crown and the Canadian dollar (the latter now more or less even on the day with its giant southern neighbor’s money.) The buck lost well over 1.00% to the euro, yen and British pound.

Some are ascribing this to the brief rise in oil prices, which has since been reversed in the U.S. oil benchmark, although Brent North Sea is hanging on to a small gain. West Texas Intermediate is down about 0.65%, Brent up not quite 0.20%.

But that cannot be the whole case for the dollar’s weakness. Rather, it’s a trading readjustment that is seeking to pull back on big, big pro-dollar bets based on last week’s European Central Bank announcement it was moving rates farther into negative territory, though not expanding qualitative easing for now.

We think it is also an indication that, as the Federal Open Market Committee’s meeting for December next week draws nearer, some investors are hedging their bets on the greenback.

The steep dollar drop pushed all the precious metals up although gold profited the least, edging up nominally.

Platinum has been battered quite soundly recently but it rose 1.00% on the exhausted dollar. Palladium was up around 0.75%, silver about 0.25%.

Of the major indices, only Shanghai rose, but it’s up-move was paltry. The rest of Asia was down as it digested bad economic news from China as we discussed yesterday. Bargain hunters were able to find some openings in Shanghai.

Europe and New York were a bit more somber, focusing on energy as a bugaboo. That energy pessimism spread into materials, transportation and for absurd reasons, into high tech. (Apple sniffles and the sector catches a cold is the general explanation.)

While energy weakness was the proximate cause of today’s equities dip, the subtext that can be read into various anglings is that analysts and investors are also waiting for the Fed.

Months ago we said that a quarter point rise in U.S. rates would have next to no fundamental effect on the essentially sound American economy. We stand by that assessment.

We do wonder if investors are now worried the Fed will not raise rates. That is a kick in the pants we don’t think we’ll be getting.

Wishing you as always, good trading,