Godzilla Does Not Care About Gold Or Equities Or Common Sense

The 800,000-pound Godzilla in the room at the moment is the fear of a Federal Reserve interest rate hike.

As of Friday, interest-rate futures were pricing in a 30% probability of an increase at the June 14/15 meeting, up from 5% several days earlier, according to the CME’s FedWatch Tool.

Aside from the simple idea of some sort of rate hike, the tool gives us a decent picture of how high and what speculators are saying about future hikes. It’s worth a peek here.

Of course, the debate on the futures board is between the cup-half empty crowd versus the cup-half-full gang. Remember that the FedWatch Tool is still telling us there is a 70% chance that rates will not be raised.

Unsurprisingly, the VIX measure is up today at the CBOE, but it is still operating in the same range I has been in since mid to late March. (That is, roughly between 14 and 16.) And it should be noted that the VIX is far off its January highs between 22 and nearly 30.

Also noteworthy is that after the last Fed rate hike in December, the S&P 500 fell from a close of 2060 to a 12-month low on February 8 of this year of 1864. Until this current rate scare, the S&P has been operating in the 2050 area, not far off the previous high in late December. The index is off its 12-month high of 2126 way back in mid-July of 2015, but it seems to have weathered the last uptick in Fed rates just fine.

For many years we have spoken out against the self-indulgent character of commentaries offered by Federal Reserve members in between scheduled Federal Open Market Committee meetings. To us these comments generally represent nothing more than highly polished blurting.

In the latest round of impulsive utterances today, Federal Reserve Bank of St. Louis President James Bullard said more factors were pointing toward a raise versus keeping rates steady. Federal Reserve Bank of San Francisco President John Williams also said he still sees the central bank two to three times this year.

Eric Rosengren, president of the Federal Reserve Bank of Boston, said on Friday that conditions for a rate increase are "on the verge of broadly being met"

“The comments this morning is consistent with growing expectation for a move by the Fed in the coming months,” Commonwealth Foreign Exchange said in a note. It added that investors would be paying close attention to a speech Friday by Fed Chairwoman Janet Yellen. Call us crazy but we think Yellen will reiterate the message in the last minutes and previous statements.

The U.S. dollar, which was up most of the day against the euro, slipped into negative territory in mid-afternoon trading in New York.

That helped gold, which had been trading in the red all day, to avoid larger losses.

At regular closing West Texas Intermediate crude tumbled about 1.00%, as did Brent North Sea. Both were up off that low a bit in after hours trade. Iran asserted that it would not cut or freeze oil production. Iran needs to make up a lot of lost income ground since economic sanctions were lifted by other nations. Only a surprisingly large draw down on U.S. stocks in Cushing, OK, kept crude from tumbling further.

U.S. equities struggled to hold on to modest gains and then failed as the session closed. U.S. stocks faced particularly difficulty as Europe was solidly down and Asia was mixed to down with only Shanghai showing strength.

Markets feel buffeted by the rate hike storms. Fundamentals are at loose ends.

The constant speculation, assessment and reassessment of Fed policy speak to two issues. The first is the abovementioned between-meeting chatter.

More importantly, the lack of fiscal policy by the U.S. Congress forces investors to rely far too heavily on monetary policy as a barometer. That is very wrong..

Wishing you as always, good trading,