The VIX fell today, although you wouldn’t know that volatility had decreased given today’s movements in markets, which seem fairly extreme.
However, as we mentioned yesterday and will reiterate today, the usual first reactions to Federal Reserve statements often are quickly “corrected” as other analysts and investors pile into the scrum.
The Dow is off 0.6%, the S&P is off over 0.4%, although the NASDAQ has been strong.
Energy holds about a 17% weight on the Dow, so no wonder that index fell. West Texas Intermediate crude and Brent North Sea were both down around 2%. It was largely a dollar play, the same force that kept a lid on gold’s price.
In Kuwait, oil minister Ali al-Omair said in a no-nonsense statement that OPEC had to keep production steady, although he worried about oil prices having been cut in half since last summer.
"We don't want to lose our share in the market," al-Omair said, bolstering comments by boss of all bosses of OPEC, Saudi Arabia, as the cartel focuses more and more on U.S. capacity. We continue to wonder, though, if the cartel is not actually aiming at Russia and its dangerous geo-political positions.
The dollar was the star of the game once more today. Its strength is governing everything else that is happening in global markets.
A paper co-authored by Charles Evans, a voting member of the FOMC underscored what doves on the committee are actually thinking in research and academic veins.
“The biggest risk we face today is prematurely engineering restrictive monetary conditions,” Evans said in a paper released today that was co-written with reserve bank researchers Jonas Fisher, Francois Gourio and Spencer Krane.
Evans, et al, also warned about “substantial uncertainty” concerning inflation and unemployment. He did not dissent from the Fed statement issued on Wednesday, which should tell us all something about how insubstantial the changes were.
"In this paper, we demonstrate that the zero lower bound on nominal interest rates implies that the central bank should adopt a looser policy when there is uncertainty," he said in (a draft of) the paper for a Brookings Institution conference on Thursday and Friday. "In the current context this result implies that a delayed liftoff is optimal."
Evans will discuss the paper Friday at a forum in Washington. One of the more telling statements in the paper was: “It therefore seems prudent to refrain from raising rates until we are highly certain that the economy has achieved a sustained period of strong growth and that inflation is on a clear trajectory to return to target,”
The key words are “sustained,” “strong,” and “clear trajectory.”
Evans is a noted dove on the FOMC. But he is also known as a meticulous researcher and documentarian of conditions in the economy. His words probably counted heavily in this week's Fed powwow.
Wishing you as always, good trading,