Volatility in GoldOil and Equities Chooses Winners and Losers

Some of the markets we are most concerned with (oil and the S&P500) started the day higher, then faltered on news of turmoil regarding the election of a new Speaker of the House in the U.S. Congress. Then the Fed released its minutes from the September FOMC meeting and things got very interesting. (Gold played its own game today, rising briefly and then falling back on the Fed minutes.)

The S&P and the other equities markets in New York liked what they read in the details of the FOMC minutes, more easy money clink-clinking representing the sound of music to investors’ ears.

Oil rose on the Russian-Syrian geopolitical risk factor. That can’t be too long lived because the Russians simply don’t have the stocks of missiles and bombs that are needed for a sustained advanced-technology effort in the region.

Crude was assisted in its rise by a resumption of business in Shanghai after a one-week holiday there. There was a release of pent-up buying fervor for crude, both West Texas and Brent North Sea, just as there was a buying surge on the Shanghai indices.

Also helping to push crude higher was a weaker U.S. dollar. The question for oil right now is whether it can sustain its rally in the mid-$50’s range or is this going to be the proverbial dead-cat bounce.

The biggest overarching news of the day, however, grew out of the Fed minutes, and statements coming from the IMF both official and unofficial ones. After warning that China faces unprecedented challenges in modernizing its economy, a high-ranking Chinese central bank mouthpiece pooh-poohed the notion. Well… the Chinese are very good at stepping in manure and saying the smell is rosewater instead.

The IMF also spoke about the commodities meltdown and how direly it affects emerging and poor countries. China can’t simper and frown about that. It’s a fact of life, and the emerging nations are some of China’s biggest customers. Weigh it for yourself, Beijing.

China also serves at the leisure of the U.S. Federal Reserve. A quarter or half point rise in interest rates would devastate China and its dependent markets. It would cause a problem in the U.S., Canada, Mexico and Europe, but it would be more of a nuisance than a torpedo to the ammo magazine.

The minutes danced a bit around how close the FOMC voting members were or weren’t to lifting rates, but the essence is once again about the jobs picture and inflation:

Labor market conditions continued to improve, but labor compensation gains were modest. Consumer price inflation remained below the Committee’s longer run objective of 2 percent and was restrained by further declines in energy prices and non-energy import prices.

Survey measures of longer-run inflation expectations remained stable, while market-based measures of inflation compensation moved lower.

Total nonfarm payroll employment expanded at a solid pace in July and August. The unemployment rate stayed at 5.3 percent in July but fell to 5.1 percent in August. With the labor force participation rate unchanged over this period, the employment-to-population ratio edged up. The share of workers employed part time for economic reasons remained elevated. The rate of private sector job openings increased in July and was at a high level, while the rates of hiring and quits were little changed.

The full Fed Minutes are here: http://www.federalreserve.gov/monetarypolicy/fomcminutes20150917.htm

Wishing you as always, good trading,