1. Moving the markets

On deck today were the Fed minutes from the July meeting, which disclosed what everyone already knew, namely that discussions about a possible reduction of its monthly $120 billion bond buying program had already happened.

Here’s what the minutes said:

Looking ahead, most participants noted that, provided that the economy were to evolve broadly as they anticipated, they judged that it could be appropriate to start reducing the pace of asset purchases this year.

The economy has reached its inflation goal and was “close to being satisfied” with the progress of job growth.

The timing of the tapering had been a hot topic ever since the Fed’s July get together, with participants expressing support of announcing such a move in September with an effective date of October.

Now that the cat has been let out of the bag, traders, and computer algos alike are left to figure out how this “tightening” could maintain the bullish meme. At least for today, the reaction was negative and, while the major indexes originally maintained a neutral sideways pattern, in the end, they dumped into the close. “Value” and “Growth” followed the same premise.

Bond yields rose for most of the session with the 10-year approaching its 1.30% level, but sold off into the close ending the day just about unchanged.

The US Dollar index ripped early on and then dipped, recovered and closed slightly in the green. Gold had its own roller coaster ride and ended the session right at the unchanged line.

I see the economy slowing down, which is clearly demonstrated in this chart by Bloomberg, a possibility that is not yet acknowledged in the equity markets.

1. Moving the markets

An early dump in the markets was not followed by the usual afternoon pump, as a meager rebound attempt failed to make up for the early losses.

Contributing to the sour mood were declining retail sales, as the artificial boom created by almost 18 months of “stimmy checks” had worn off. Other econ data points were mixed with Homebuilder Confidence collapsing to 13-month lows, but US Industrial Production showed some hope with its indicator rising 0.9% MoM, which is the 5^th straight month of increases.

Still, signs about a slowing economy are present, causing ZeroHedge to state:

Well, we were right: 3 months later, with China bracing for a softish (if not much harder) landing, with countries imposing Covid lockdowns all over again, and with the US consumer tapped out and no longer spending like a drunken sailor, the peak is long behind us and the painful return of gravity – and stimmy-free reality – is back on deck…

Home Depot disappointed and dropped 4% despite topping estimates, but it was the same-store sales numbers that analysts focused on, and they were below expectations.

The “growth scare” continues as US Macro data is declining/disappointing at the fastest rate since March 2020, as ZH put it. To me, this type of reality must set in when a so-called recovery is based nothing but hot air via reckless money creation without an offsetting increase in production.

The US Dollar rocketed today and touched last week’s highs, while bond yields meandered aimlessly below the unchanged line with 10-Year dropping to 1.26%. Gold held up surprisingly well, given the massive dollar jump, with the precious metal only giving up -0.16%.

1. Moving the markets

Overnight, Chinese econ data came in far below expectations thereby pulling down the futures markets. Even though their retail sales increased by 8.5% in July, it was a far cry from the expected 11.5% forecast. The manufacturing sector figure disappointed as well.

This negative sentiment carried over into the regular session with the Dow sinking some 200 points with the other major indexes showing similar losses. Not helping the mood initially was the Fed with their statement that they will announce “a tapering of its bond purchases in September,” which then would be implemented within a month or so thereafter.

Still, traders opined that “fundamentals” still support the “risk on” meme, and a slow and steady recovery pulled the indexes out of an early hole with only the Nasdaq failing to close in the green. Helping the retail sector climb higher were positive prospects of quarterly earnings reports from the big players like Home Depot and Walmart.

The US Dollar inched higher, while bond yields slipped a tad. Gold was the beneficiary of today’s uncertainty, and the precious metal added 0.62% but stopped short of its $1,800 level.

Bloomberg reported that August is shaping up to be one of the calmest on record. The equity benchmark has fluctuated an average 0.5% each day, a level of tranquility that, except for 2017, has rarely happened. Makes me go “Hmmm.”

My posting schedule for this week looks like this.