FOMC Minutes Can’t Cure January Blues

The release of the Federal Open Market Committees minutes from its December policy meeting did little to affect trends in today’s markets.

Equities held lower; gold stayed higher; crude oil is getting its brains beaten in; the U.S. dollar was down ultimately against the euro after having been up all day (and was notably lower against the yen. The U.S. bond yield fell slowly all day while face value of paper rose.

International jitters over North Korea, lower crude and tensions in the Middle East, as well as a weakening China added to the woes of stocks.

The slow movement in bonds’ status may be our first indication that strategists are slipping out of “safe-haven mode” and at least examining risk-on investments.

Gold will hang on to gains that took it to seven-week highs (at least until profit takers emerge). Money from the Middle East poured into the yellow precious metal as the Saudi-Iranian crisis came to the fore.

The FOMC was careful to point out that, while the voting for the current statements and for the rise in interest rates by 0.25% was unanimous, some members were less convinced of the judiciousness of the hike than others.

The mini tempest in a teapot is summed up here in the minutes [paragraph breaks inserted]:

“During their consideration of economic conditions and monetary policy, almost all participants agreed that the improvements that had occurred in the labor market and their confidence in a return of inflation to 2 percent over the medium term now satisfied the Committee’s criteria for beginning the policy normalization process.

“Participants also discussed the implications of economic conditions going forward for the likely future path of the target range for the federal funds rate. Even after the initial increase in the target range, the stance of policy would remain accommodative. Participants saw several reasons why a gradual removal of policy accommodation would likely be appropriate. Normalizing policy gradually would keep the stance of monetary policy sufficiently accommodative to support further improvement in labor market conditions and to exert upward pressure on inflation.

“Also, a number of participants pointed out that because inflation was still running well below the Committee’s objective and the outlook for inflation was subject to considerable uncertainty, it would probably take some time for the data to confirm that inflation was on a trajectory to return to 2 percent over the medium term. Gradual adjustments in the federal funds rate would also allow policymakers to assess how the economy was responding to increases in interest rates. In addition, by several estimates, the neutral short-term real interest rate was currently close to zero and was expected to rise only slowly as headwinds restraining the expansion receded.”

Read the entire body of FOMC minutes here (http://www.federalreserve.gov/monetarypolicy/files/fomcminutes20151216.pdf)

We are also inclined to look at the way that U.S. equities came off their lows a number of times today. There seems to be plenty of interest in the American listings.

The Shanghai index was higher today, up around 2.25%. The yuan, however, hit a record low against an international basket of currencies.

Neither Tokyo nor Hong Kong liked the (alleged) North Korean H-bomb test. The two indexes in those cities tumbled about 1.00%.

Wishing you as always, good trading,