1. Moving the markets

The futures markets already indicated a strong opening, which is exactly how things played out. The major indexes roared out of the gate with all three of them displaying solid gains, but the leader was the Nasdaq by showing off with an advance of +1.55%.

Last week’s weakness was shoved in the rear-view mirror, when Fed VP Kaplan, after Friday’s close, uttered those words that markets are dying to hear, namely that “he’s open to adjusting his view that the Central Bank should start tapering sooner rather than later if the Delta variant persists and hurts economic progress.”

Wow, how much clearer can he be to announce that talk about tapering was just that: Empty talk.

Be that as it may, market reaction was broadly bullish with even the international arena recovering from its recent swoon and participating in today’s “Ramp-A-Thon.” The US Dollar took a swan dive, with bond yields joining in, as the 10-year dropped to 1.25%.

That caused Gold to take off with the precious metal not only rebounding +1.26% but also reclaiming its psychologically important $1,800 level.

The key event is the upcoming Jackson Hole, WY virtual symposium and Fed head Powell’s highly anticipated speech later this week causing a wave of speculations. Here’s one:

Our base case is that the FOMC will announce a taper in September if the August non-farm payrolls is strong,” said Joseph Capurso, head of international economics at CBA. “We anticipate the taper will be implemented in October or November, though the recent increase in Covid infections and deaths in parts of the U.S. may give Powell pause.

It seems something went awry in the markets today, as equities totally disconnected from the bond markets, as Bloomberg demonstrates in this chart leaving me pondering as to who will be right in the end.

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%.