The Mixing, Mashing, And Uncertain State Of Gold, Oil, Dollar

If the Fed sneezes, investors catch a cold. That’s a variation on the old adage about the U.S. sneezing and the world catching a cold.

So, the Fed is sneezing all over the place and everyone is scrambling to calibrate a response. We feel as if the response is finally jelling. Most sober minds are finally dumping September as the month for a rate lift off, regardless of what the nervous Nellies are saying.

Another nail was hammered into September’s coffin today. The Employment Cost Index rose a scant 0.%, the smallest increase in 33 years and below expectations of 06.%.

That's "telling us there's very little wage pressure in the U.S. economy right now. There are some FOMC members on the margin who are going to be less willing to raise rates in September," said Luke Tilley, chief economist at Wilmington Trust Investment Advisors. "When we just look at the initial impact for firms, the cost of employment (was) not as much as in the first quarter."

There you have it in a nutshell. Aside from the quasi-ideological impulse that states we should have higher rates in case of a further recession so the Fed can then lower rates, there is little hard evidence that argues for a September rate rise.

The U.S. dollar reacted accordingly, falling more than 0.50%. That in turn bolstered gold, which is up around $5.50 in mid-afternoon trading. Gold has fallen 6.5% in July. That’s the largest monthly drop in two years.

West Texas Intermediate crude found no help in the softer dollar, falling about 2% although it is up from its lows of the day. Brent North Sea was in the same boat. Brent seemed a little shakier, more volatile as it draws closer to the $50 per barrel level. There will be more volatility as traders on either side of that ball try to force the price below 50 bucks are work to keep it afloat above that mark.

In July, Texas and Brent were down 20% and 18% respectively, the biggest falls since the cataclysms of 2008.

The WTI price will mark U.S. oil’s biggest monthly drop in nearly seven years.

Oil prices were hit by two pieces of news. First, and most important, is OPEC’s announcement that it would keep production levels at their current high output level. Second, the U.S. oilrig count rose unexpectedly (and inexplicably) for the second straight week. We feel that is because U.S. domestic gasoline consumption has jumped and the need for oil “close at hand” is high. Refineries need oil right now, not on a tanker leaving the Persian Gulf. Regardless, the increased rig count helped push oil down.

Crude prices, in turn, are keeping a lid on equities trading in New York today, affecting the Dow and S&P 500 most. The NASDAQ is incrementally up. Energy is a very important component of the Dow and a key, though not dominating, part of the S&P collection of companies.

There is also an “August wind” blowing. Once trading on the equities started slipping in price, a lot of the big boys headed for the beaches and mountain. April may be the cruelest month, but August is the stillest month. Fewer traders and investors equals fewer shares or contracts being moved and so increases volatility.

So be prepared. There ain’t no cure for the summertime blues.

Wishing you as always, good trading,