[Chart courtesy of MarketWatch.com]

1. Moving the markets

All eyes were on the Fed’s two-year review of their policy framework with the focus being on their new idea of AIT (Average Inflation Target), which allows for periods when inflation could run hotter to make up for periods when it falls below the target with an averaged being 2% annually.

Here are some of the more pertinent comments:

… in thinking about whether to raise the inflation target to a certain level, central banks need to take into account whether they are able to raise inflation to the new target level. If a new inflation target is too ambitious, and the central bank fails to attain it, the central bank may lose its credibility, which may render less effective any other policies it pursues. Also, the central bank may face the risk of getting trapped in a never-ending monetary accommodation even when real economic activity is strong or when financial stability risks accumulate.

Analyst Bill Blain simplified it like this:

‘Inflation Averaging’ means “don’t worry about rate-hikes, or any normalization of rates, we are so desperate for inflation we are going to encourage it and we want markets to love it… it’s a way of reassuring markets that there’s never going to be another interest rate rise!”

“hedge! …with gold… for the inevitability of this all going wrong!”

The markets reacted positively at first and then came off their highs with the Nasdaq and Gold closing in the red.  

Uncertainty reigned and was not helped by the Initial Jobless Claims, which showed that another 1 million Americans filed for first-time benefits, as Bloomberg shows in this chart. This was offset by US Pending Home Sales surging to their highest since 2005, which is up a stunning 15.4% YoY, its biggest annual jump since October 2012.

In other words, we are seeing a mixed picture, which was not helped by more confusing comments, which ZH succinctly summed up like this:

*POWELL SAYS FED TO SEEK INFLATION THAT ‘AVERAGES’ 2% OVER TIME

…then ‘moderation’ sent them reeling:

*POWELL SAYS ANY INFLATION OVERSHOOTS WILL BE MODERATE

but he later reassured that they would let inflation run and things took off again…

*POWELL: SEEK TO RUN INFLATION ABOVE 2% AFTER PERIODS BELOW 2%

Then Pelosi triggered a drop in stocks (hitting right as Europe closed)…

1129ET *PELOSI SAYS NOT BUDGING ON STIMULUS, REPUBLICANS HAVE TO MOVE

This didn’t help!

1315ET *Kaplan: Markets Need to Understand How to Operate Without Fed Support

And then Pentagon headlines spooked markets a little late on…

1420ET *CHINA MILITARY SAYS U.S. WARSHIP EXPELLED NEAR PARACEL ISLANDS

And then Pelosi again…

1515ET *MEADOWS-PELOSI TALK DOESN’T APPEAR TO YIELD BREAK-THROUGHS

1530ET *PELOSI SAYS SHE IS STICKING TO HER DEMANDS ON STIMULUS

This should pretty much clear up any confusion as to what the next move in equities will be…

Read More

[Chart courtesy of MarketWatch.com]

1. Moving the markets

In a repeat from yesterday, the S&P 500 and Nasdaq surged to new highs with the latter sporting an impressive gain of +1.73% while the former trailed but logged in a solid +1.02%. The Dow fell short and lagged again, but gold put on an impressive performance as well.

News of progress of coronavirus vaccine trials supported the bullish mood, as did expectations that the Fed would keep easy monetary policy alive when Powell speaks on Thursday.

Added MarketWatch:

Fed Chair Powell will deliver a webcast address to the annual Jackson Hole gathering of central banks on Thursday which is taking place virtually this year. He’s expected to outline changes to the Fed’s policy framework that would allow inflation to run hotter than in the past, ending the Fed practice of hiking interest rates at the first whiff of rising price pressures.

This will be one of the ingredients necessary to keep the market in an ascending direction, at least for a while, until inflation gets out of hand, and then what? History has shown that inflation, once accelerating, can’t be simply controlledvvia an “off” switch. There will be consequences to that policy, but to me that will be the moment in time when precious metals truly shine.

Traders are also looking for additional Fed action via more stimulus while the White House and the Dems are deadlocked on a new coronavirus package.

For sure, we are enjoying the ride, but we are aware and prepared to act should it come to an end all of a sudden.  

Read More

[Chart courtesy of MarketWatch.com]

1. Moving the markets

The markets opened slightly higher as positive vibes for equities were generated in part due to a phone call between top US and Chinese officials appearing to reaffirm their commitment to the phase one trade deal agreed to in early 2020. It’s not certain at all if this was simply pretense, because of the rise in tensions between the two parties.

China described the call as a “constructive” discussion between Vice Premier Liu He, the country’s top negotiator, and U.S. Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin. The U.S. said both sides “see progress and are committed to taking the steps necessary to ensure the success of the agreement.” The call came after plans for a discussion earlier this month were postponed.

Source: MarketWatch

The major indexes continued to bounce around their respective unchanged lines with the Dow closing below it, while the S&P 500 and Nasdaq rallied with the latter taking not only top billing for the day with a gain of +0.76% but also notching another record high.

The mid-session uncertainty was stoked by a few economic reports, which suggested a mixed picture of underlying conditions, as ZH reported:

US Consumer Confidence re-plunges in August to 6-year lows

US New Home Sales surge in July, Highest annual spike since 1996

US Home Price growth slowed in June

Mortgage Delinquencies soar to Decade high

The weakness in gold continued, but GLD managed to eke out a small gain of +0.12%.

Read More

[Chart courtesy of MarketWatch.com]

1. Moving the markets

At least for this session, we saw a change in leadership with the Dow racing ahead +1.35% leaving the S&P 500 trailing with only a +1% gain. Lagging the major indexes, despite an early solid jump, was the Nasdaq, which dropped into the red at one point but managed to eke out a relatively meager +0.60%.

Gold fell early on, rallied sharply back above its unchanged line but sold off in the end failing again to reclaim its magic $2k level.

The upbeat mood was the result of renewed hopes for a Covid-19 treatment, after the FDA said “it approved the use of convalescent plasma, the antibody-rich component of blood taken from recovered Covid-19 patients, as a treatment for serious coronavirus cases.”

Commented MarketWatch:

The new bout of optimism helped beaten-down cyclical sectors, including shares of energy and industrials, areas that would benefit from a faster economic rebound. Energy shares led the S&P 500’s gains in afternoon trade.

Taking front and center this week will be the Kansas City Federal Reserve Bank’s annual symposium. The event is usually held in Jackson Hole, WY, but it will be conducted via webcast this year. Fed chair Powell is scheduled to speak Thursday on “how the central bank plans to achieve its twin goals of stable prices and maximum employment once the coronavirus pandemic has ended.”

The symposium’s title for this year is “Navigating the Decade Ahead: Implications for Monetary Policy,” which left Bloomberg’s Richard Breslow somewhat dumbfounded:

I have to admit, that leaves me cold and, somewhat worryingly, uninterested. To think they know anything about the decade ahead, let alone intend to act upon any conclusions based on the forecasts, seems devoid of any ideas to do something about the here and now.

Again, today’s advance lacked “breadth,” which has created a lack of correlation, as Bloomberg points to in this chart. While such divergences can last a while, sooner or later a recoupling is in order.

There is no guesswork here; we need to wait and observe how it plays out to see if the major bullish trend gets interrupted to a point that would trigger our exit strategy.

Read More