Gold On Hold, Crude Bounces Up On Lower Stockpiles The Settles Lower, Global Equities Up Except Nikkei

Gold held its breath as it awaited the Federal Reserve presentation as well as after the FOMC meeting that ended today. It declined a bit, and then rose slightly despite a stronger greenback. The Fed offered no new wishbones to pick over, restating what most of us know already.

Employment is steadily improving, the economy is expanding modestly and inflation has to be kept under scrutiny, although it seems pretty tame right now. So, there was no real forward guidance, given what the data are telling the Fed and the rest of us with eyes and ears.

The committee also observed that, "business fixed investment and net exports stayed soft."

Earlier in the day, with the markets anticipating the substance of the statement, the U.S. Treasury Department sold $35 billion of five-year notes buoyed by strong investor sentiment. The five-years brought a yield of 1.625%. Yield was down and face price was up, giving us some indication of how much faith buyers have in low interest rates and the creditworthiness of the United States.

Overall, however, we interpret the statement as hawkish on rates with some wiggle room toward neutral. We firmly believe that rates will be raised in December unless some calamity hits the U.S. economy. Even China and its struggles – if they are compounded further – won’t do it alone.

Futures traders slashed their bets on a September hike, dumping the chances from 19 percent to zero, according to the CME Group's FedWatch tracker.

"It's just 25 basis points and I think it's important to put it into perspective," said Anika Khan, senior economist at Wells Fargo. "Of course the Fed will still be very much accommodative. If we look at the Fed's balance sheet that continues to be at an unprecedented high level and so that means the Fed is still going to be accommodative.”

So what is the concern? Hunger for some news, good or bad. The human animal doesn’t like stasis. As much as it longs for it when events run out of control, once stasis is achieved, the human looks for change and more change.

U.S. equities liked the statement, and why not? It means more cheap money and more opportunity to pump up the stock markets. The S&P and Dow at 3PM in New York were up almost 0.70%. NASDAQ was up, too, but straggled behind its older brothers.

West Texas Crude rose to almost $49.50 but has since fallen back below $49.00 in afternoon trading. Brent also followed a similar pattern. The initial rise was due to a draw down in inventories 20x what analysts had predicted and a rumor, shaky as it might be, that Saudi Arabia is due to curb production levels later this year. That wouldn’t mean much because North America and other producers will immediately step into that breach.

The U.S. dollar strengthened considerably after the Fed report, up by 0.75% at 3PM in New York.

Wishing you as always, good trading,