Mixed Data And Mixed Up Markets

U.S. equities probably executed the best strategy Thursday after a raft of U.S. data appeared yesterday and today. Do little or nothing stock traders seemed to say.

The dollar weakened and that helped gold considerably, but investors and traders in the precious metals markets were having none of it, pushing gold down more than the dollar could buoy it up. As we have said, there seems to be no real fundamental backing for gold.

The Philadelphia Federal Reserve Bank said its business activity index rose to 7.5 from 5.0 the month before mostly on the strength of renewed vigor in manufacturing. That topped Reuters’ poll of economists' expectations for a reading of 6.0. Perhaps a harbinger of spring and summer?

Stanley Fischer, the Fed's vice chairman, a notable soft dove on interest rates, today said that the U.S. economy is currently on a rebound.

"We'll see at what speed it proceeds, but the first quarter was poor. That seems to be a new seasonal pattern. It's been that way for about four of the last five years," he said.

Of course there was a counterpoint, one sounded from an unlikely quarter – Dennis Lockhart of the Atlanta Fed, a serious rate hawk. About a June rate hike he seemed to say, “Fugghedaboudit.”

"Some factors at work in recent months were clearly transitory in nature, and some other factors have triggered rapid adjustment in certain sectors of the economy," Lockhart said, according to a transcript of his speech to the Palm County Business Leaders group. "Together, they are giving rise to heightened uncertainty about the track the economy is on."

While he believes the economic picture is “murky,” he predicted growth this year in the U.S. would be between 2.5% and 3%. So, he’s not quite ready to pull the trigger on tightening.

"I think it is highly desirable that the public sees an economic picture at the time of the liftoff decision that is consistent with the decision criteria the FOMC has set out," Lockhart said. "Ideally, coherence between data and decision would be clear to all."

A third county was heard from regarding the first rate hike: “If it turns out that the incoming information shows that growth is regaining momentum after the first-quarter slowdown and more broadly supports my forecast, I would be comfortable with liftoff relatively soon,” said Federal Reserve Bank of Cleveland President Loretta Mester in remarks delivered before the Forecasters Club of New York.

“Although the [Federal Open Market] Committee has been appropriately cautious, the improvement in underlying economic fundamentals consistent with my outlook indicates that the expansion would not be adversely affected by a gradual increase in the policy rate from zero,” said Mester, who doesn’t hold a voting slot on the Fed’s policy-setting board this year. “Liftoff means a reduction in the degree of extraordinary policy accommodation; it doesn’t mean tight policy.”

Her opinion, that of a non-voting member, will be duly noted and duly ignored by the voting members.

We feel that gold is taking seriously the idea that rates will not increase until September or even December. (The latter month will become part of our focus as spring wears on and we look at U.S. economic data ourselves.)

If the United States really wants to help itself economically, the Congress should begin acting responsibly through fiscal and infrastructure policymaking.

Republicans need to stop grandstanding about “slashing Social security” and ending Obamacare, which almost no one except radicals wants to do. The Democrats need to stop focusing on outmoded social programs that are best strategized in Washington and executed on a state level.

Both parties need to focus on “the vision thing,” as George H. Bush once termed it. We seem to have no broad, national goals and we need them. Infrastructure is one of those appealing targets. As one young person expressed to us over Christmas, “We work and then the country goes to war. We work, then…”

The point is that the U.S. can’t rely on the Fed forever as the only tool to boost the economy.

Wishing you as always, good trading,