Looking Sideways As FOMC Set To Meet

Anyone dreading the Fed’s potential actions come Wednesday afternoon when its two-day meeting ends will find reason to head to the sidelines today and tomorrow, staying there till the statement is released.

Never mind that current probabilities for an interest rate hike are hovering around the 2.5% level on the CME FedWatch site page. Unsurprisingly, since the media – even in the financial worlds – has to fill its time and space with sensationalist articles – there are some voices criticizing the Fed for being “inconsistent.”

From our vantage point, it seems that for years now, the U.S. central bank has been saying its decisions are data driven. The Fed can’t force data to be consistent. The Fed critics are ideologues who want the rates to rise regardless of the status of the American economy and a host of market forces beyond U.S. reach. That is inconsistent.

Even some players in gold, the traditional safe haven, became a bit skittish, pushing the yellow metal down 0.50%. Silver was down as well, also a little less than half a percent. Platinum fell marginally. Wild rider palladium was up about 0.45% on the session.

The biggest losses on the day were in crude. West Texas Intermediate, the American benchmark, was down 2.45%. Brent North Sea was right behind it on the down slide.

Naturally, oil’s prices affected equities in the U.S. It’s clear that the larger the energy component on each of the three major indexes, the greater the (modest) losses. So, the Dow is off half a percent, the S&P is down by 0.40% and the NASDAQ by about 0.10%.

Stock have been a bit heavy from the heady run up of the last few weeks. This is a necessary breather. Traders and investors will be looking for answers in the Fed statement Wednesday not so much for the present but for September and November. The rates seem as if they will rise this year. The question is when. So, for that, the Fed statement will be scrutinized heavily.

Asia and Europe’s equities were mixed to slightly up. The strongest among them was the German DAX. A key German business climate index fell, showing slowing, but it slid less than predicted. So the DAX was up, it was down, then back up on the day.

The dollar was off modestly against the euro, the British pound, Swiss franc and the yen. Those all represent bets that say more or less that the Fed will not be raising rates and it doesn’t mean a whole lot, anyway.

The 10-year bond yield was essentially unchanged on the day. Call us fond of generalizations, but it seems as if the financial system is moving glacially right now.

Partially, it is the summer dog days*, which give us short-handed analyst and trader desks, and low-volume days, especially Mondays and Fridays. Bosses are gone to the Hamptons… so let’s not do anything that will spoil their vacay.

*Ancient Romans noticed that the really hot days came along with the rising of Sirius, the Dog Star, in the Canis Major constellation. Since it is the brightest star in the heavens, they reasoned that it somehow contributed to the sun's heat. Their reasoning is wrong, of course.

Wishing you as always, good trading,