Markets in holding pattern

Sep 19, 2017

The stock market inched higher again today; the bond and mortgage markets generally unchanged. Markets acting as usual ahead of an important FOMC meeting that concludes tomorrow, these days normal is for the stock indexes to make new highs daily.


President Trump at the UN today; called the Iran deal an embarrassment; threatened NK once again saying the US will have “no choice but to totally destroy North Korea” if forced to defend itself. Called the little leader “Rocket Man” saying he is on a suicide mission. The Sec General also speaking for the first time since he took the leadership countered with the usual diplomatic course. Trump said the world must do more to isolate both North Korea and Iran, which he described as rogue regimes that respect neither their own citizens nor the sovereignty of other countries.


Healthcare; a new bill being crafted by Republicans led by Pence and Senate Majority leader McConnell. The bill would hand over billions of dollars in healthcare spending from the federal government to the states, end the coverage mandates included under Obamacare, and drastically cut back Medicaid. A bill must be passed by the end of this month; already huge resistance. Some key Republicans are already saying they won’t vote for it, including Sen Paul Ryan. The bill will need all but two Republicans to get it passed.


Tomorrow is all about the FOMC, but in the morning August existing home sales will be reported; expected at 5.48M from 5.44M in July.


Will the Fed bend to more hawkishness tomorrow and announce the beginning of tapering off its $4.5 trillion balance sheet; or will the FOMC look at the lack of inflation and a questionable outlook for better economic growth and kick the can? The general consensus is that the Fed will announce the tapering but will fall back on data dependency when it comes to anticipating another rate hike at the December meeting. A week ago the ECB kicked the can and kept QEs going with Draghi commenting the issue would be discussed again at its October meeting.


Ambivalence heading into Wednesday’s decision continues to amaze. Under the surface, we hear there is a lot of angst at the level of stock indexes, but on the surface, where money matters more the indexes continue to make new highs, pushing indexes higher up a very steep hill. If the Fed comes off looking worried about continued growth, or if the Fed comes off hawkish and markets take it that the Fed may be finished supporting the economy; either way, it may be viewed as a hurdle for economic bullishness. Growth this quarter has slowed so far; most stock analysts are on the same page saying Q3 earnings will not match earnings in Q1 and Q2. The FOMC has to make a case that inflation is increasing; hard to do but markets do take the Fed as gospel, especially if the Fed lines up behind a particular market belief. Either way, tomorrow afternoon should set up increased market volatility.


We expect flat trading tomorrow until at least 2:00 PM EDT when the statement and the Fed’s quarterly forecasts on inflation and GDP growth for the next two years; then at 2:30 Janet Yellen’s press conference. This FOMC meeting has been on minds since last April.


Source: TBWS



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