Steady and Puzzled Markets Head Nowhere Perhaps Seeking Divine Intervention On Stimulus

Conventionally, people would say: “The dollar is steady before the Fed statement Wednesday afternoon.” We would say: “The dollar, like other markets – with a few exceptions – has no idea what it’s doing.”

Why this is so is mystifying. Are there really enough investors out there who think that the FOMC will raise interest rates tomorrow? Or the committee will make a hawkish statement so strong that it will seem a fait accompli that rates will rise in December?

Possibly a good answer is that unlike mere mortals, speculators who deal in the tens of millions of dollars on one trade, are looking to move markets down and then turn right around and go long after the Fed statement is released.

With that in mind, indeed the dollar was steady to slightly off today. That helped gold rise about $4 on the day, after having a barely discernible puls for much of the session. 

The big story of the day is the continuing declines of crude oil prices, which have lost more than 10% since October 9^th. West Texas Intermediate crude traded below $43 per barrel for much of the day unitl popping back above that mark. That’s off almost 2.5% on the day. Brent is a hair below $47 per barrel, a six-week low for the international benchmark trade.

The precipitous drop is partially due to seasonal factors (decreased demand at refineries, especially those that manufacture gasoline) and generally slack demand. Worries about demand have been given new life as the energy industry has growing concerns about the strength of the Chinese economy, especially manufacturing.

China’s manufacturing profits slipped 0.1% year over year in September, looking better than from the 8.8% tumble in the previous month. Despite the monthly improvement, business economists remained pessimistic.

The Bank of Japan is exceedingly wary of the China sluggishness. We will hear from the BOJ this week after the Fed has delivered its statement.

We hate to sound like a broken record or scratched CD but where would the possible justification for a Federal Reserve rate hike come from? We can’t even name a single sector that might be in need of the “throttling back” that a hike would signify.

The U.S. economy is flying fairly strongly, but could be performing so much better than it is. However, Europe is a pace or two behind the American beast and China is barely maintaining airspeed. Japan seems betwixt and between… surging then receding, surging then receding, tied into the Chinese economy regardless of what the Japanese oligarchy might wish.

So, we are commanded to sit still and stay calm until at least Chairwoman Janet Yellen speaks tomorrow, and even better when we hear from Japan after that.

You can’t grow an economy much when your inflation rate is below 2.00%. More stimuli, more innovation from government in partnership with the private sector is necessary globally.

Short of divine intervention, nothing else will change the course of the global money machine.

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Wishing you as always, good trading,