Fed Having Second Thoughts?

Around dinner time in Norway yesterday the Dow Jones Industrial Average was down over 750 points, which was close to 3%.  This followed after Wednesdays day of mourning for President George W Bush, when the markets were closed. Things were looking very somber, when the Wall Street Journal had an article suggesting that the Fed may well adopt a slower approach to rate hikes after hiking this month.

The chart above is the DJIA CFD.  The post-Thanksgiving holiday, pre G20 / Trump and Xi dinner led the market higher from 24,500 to 26,000.  The market was positive to the Fed signaling a slower rate of hikes, and the hope that the postponement of tariffs by 90 days would give the two countries time to work out a better solution.  Early this week  the shine came off the meeting and the market reacted poorly for the better part of 3 trading sessions, until the Fed comment mentioned above.

Now what?:

  • Fed looks to be giving the market what it wants, a more wait and see attitude than determined to hike 2 to 3 more times. (We think the jury is out here)
  • Focus on the U.S. yield curve, and trade uncertainty seem to be weighing on the markets.
  • The U.S. economy seems to be at close to full employment (we get the latest update today), have to wonder, how much better can it get?
  • The Fed’s past hikes and shrinking balance sheet along with ECB discontinuing bond purchases soon are creating tighter monetary and credit conditions.
  • Inflation doesn’t seem to be an acute issue
  • Mortgage rates in the U.S. are coming of their highs which may well help the housing sector, which has been struggling.

Equities:  we are defensive to the global equity markets and still like selling rallies on good news.

Gold:  bullish and would continue to suggest buying on a close above the 1238/1240 level after the unemployment report.

Oil:  on sidelines as we await OPEC+ to decide on cuts.

USD:  positive vs the euro and would sell into Eur rallies, sidelines in USDJPY due to the role JPY plays in volatile market conditions.

Not much to cheer about in European stocks since September:  CFD chart for Germany, France, U.K., Italy and Norway

Watching for the close in gold this afternoon to add to gold position for a test of 1290/1300

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