Archive - Sep 16, 2015 - Story

More bad news - proving The Fed's projections wrong once again - appear to have enabled yet another USDJPY-inspired ramp ahead of tomorrow's FOMC statement.

A week ago, we noted Goldman Sachs' 'strawman' that Janet should "think about easing," despite the world's misplaced confidence that rates will rise "inevitably" since the US economy is doing so well. Today, we get to hear what 'god' thinks as the only thing that matters for The Fed's decision is - keep Lloyd happy  - and Goldman CEO Blankfein just said "U.S. economic data doesn’t support the case for higher interest rates."

We’re seeing a shift in the world’s dominant superpower at the exact same time there’s a shift in the global financial system, and reserve currency, and game-changing technology. And even more trends that we haven’t even discussed. The convergence of all of these trends at the same moment is the MEGA-trend. The last time this happened was... never.

At this moment, president Obama is taking to the Business Roundtable where as noted previously he will discuss "the turnarounds in the stock market, housing iprices [sic?] and job growth." Here are some things Obama will not discuss.

You know, to help fight ISIS...

That low oil prices are squeezing out oil sands producers is not breaking news. But in spite of a grim oil price outlook, production out of Calgary has continued to grow, defying both expectations and logic. The implications are serious, not just for the future of Canada’s energy industry and economy, but also North American energy relations.

It appears the machines decided to read the whole DOE report after all... and run some more stops.

Mortgage applications fell 17.0% this week on a non-adjusted basis (following a 7.2% the previous week) for the biggest 2-week drop since January 2015. Even on a seasonally-adjusted basis the last 2 weeks have dropped 6.2% and 7% (the biggest 2 week drop since Feb 2015). However, just as Sept 2014 was notably seasonally weak for mortgage applications, for this time of year, mortgage applications have not been weaker since 2000.

• Markets await one of the most hyped rate decision in several years
• Most expect the Fed to keep the Fed Fund Rate on hold at 0.00-0.25% while signalling a possible rate hike by the end of the year, however there is a substantial outside bet (~30%) that the Fed will hike rates by 15-25bps

OVERVIEW

September’s FOMC monetary policy decision has been one of the most hyped rate decisions in recent years, with expectations shifting in the past few months from a possible hike to the Fed Funds Rate (FFR) to the most recent consensus that the bank will leave rates unchanged this month. There remains an substantial but outside bet (markets pricing in ~30% probability of a hike) that the Fed could raise rates this month, however rhetoric from the central bank over the past month suggests policy makers remain undecided, and given the Fed’s commitment to communication, many suggest Fed Chair Yellen would have prepared the market much more if action was likely to be taken on Thursday.

Many analysts note that financial markets are not ready for the first rate hike yet, the Fed will not lose credibility if they do not move, and one large consideration for the doves on the committee is that the full impact of “Black Monday” has yet to be fully seen and global growth uncertainties remain after a period of market volatility. However, hawks on the panel will likely support their argument for a rate hike by pointing to the fact that the Fed cannot wait for overwhelming evidence before hiking as this would be too late. One other point members are likely to pick-up on is that the labour market can no longer be used as an excuse to delay this month given its relative strength, however inflation continues to languish as indicated by Wednesday’s fall in CPI due to the slide in gasoline prices.

Confirming last night's 'surprise' API inventory drawdown, DOE reported a 2.1mm draw, following 2 weeks of significant builds. Crude production fell for the 6th week in a row to its lowest since Dec 2014. It appears some profit-taking algos are in place as a draw combined with lower production has been met with significant selling pressure in WTI.

Will Janet Yellen proudly put the Fed on the side of the angels, announcing that she and her crew have decided to move the Fed’s key interest rate to a more normal level… regardless of how much it costs the cronies? No, she won’t. Once you begin manipulating markets, it’s a hard habit to break. After nearly seven years of emergency financial policies, we are now in a permanent emergency..."What if they say it’s my fault? What if they call it the Yellen Depression? Oh, no... It’s not fair... It’s not fair... Boo-hoo... sob... sob... I should have stayed at Harvard. I’d have tenure. I’d have a nice pension. George and I could go the Martha’s Vineyard in the summer. It would be such a nice life."

NAHB Sentiment jumped (again) to 62 (from 61) - its highest since 2005. The last time homebuilders were this exuberant, home sales collapsed.. reminding us of Upton Sinclair's classic line, “It is difficult to get a man to understand something, when his salary depends on his not understanding it.” In this case, with mortgage applications indicating anything but a healthy housing market, "It is difficult to get a homebuilder to admit all is not well when his entire career depends on his ignorance of reality."