Oil And Equities See Bullish Tone While Gold Has To Wait For Its Chance

U.S. equities and crude oil today heartily approved of the Federal Reserve’s inaction on rates yesterday.

This reaction is important because often enough, on the day after a Fed announcement, markets move in a direction opposite from that in which they initially moved. (So, since markets moved up yesterday after the FOMC’s news release one could have reasonably expected there would be some giveback.)

The Dow, S&P 500 and NASDAQ all saw up-moves. Especially germane to our trading is the S&P, which at 4PM in New York is up about 0.60%. Transports were the biggest movers, implying that American manufacturing is perking up, as is travel among consumers.

West Texas Intermediate settled above $40 per barrel for the first time in 3-1/2 months. That’s sharp 4.5% move up. Brent was also higher. The two crudes helped to drag the price of natural gas up, as well.

Gold, however, could not muster another rise in price. The weaker U.S. dollar tried to assist by helping gold rise about $12.40 but regular trading depressed the price by $18.00 so that overall the yellow precious metal is down around $5.60 per ounce. (At 4PM in NY.)

The greenback fell considerably in the aftermath of the dovish Fed news release yesterday. The weak dollar is no surprise because, while standing pat on rates was expected, the underlying tone of skepticism about the world economy was a bit startling.

Essentially the U.S. central bank pointed out that the U.S. economy is sound but is being hampered by events beyond its borders.

We’re not sure where the big reveal comes in the collective mind of the markets regarding the Fed’s position on raising rates again – and again – this year (or not).

Everyone has always known the decisions were data driven. How else could they be based? We believe that there are far too many ideological jawboners in banking and finance who think strange thoughts in the steam room at the gym.

Their thinking runs something like this: It’s time to raise rates because rates have been so low for so long and the Fed said they would raise rates and so they will raise rates no matter what.

Our belief is that no one has yet grasped the utter severity of the Great Recession and the devastation it caused to the world’s economy. This should come as no surprise because the great landmark studies of the Great Depression did not begin to come out until well into the 1950s (Galbraith) and continue apace today. (Ben Bernanke wrote a series of essays applying his microeconomic analyses that were anthologized in 2004-5.)

We distinctly feel that the lack of inflation we have been experiencing recently is due to very low oil prices. Since the last Federal Open Market Committee meeting, the price of WTI per barrel has gone up about 20%.

We shall see how that affects system-wide price pressure in the next few weeks should the plus $40-per barrel price hold. A strong impact of a fuel-cost bump will clearly affect the Fed’s thinking.

At 4PM in New York, the three major equities indexes are off their absolute highs for the day, but have held most gains.

Wishing you as always, good trading,