All eyes on the Fed

July 29, 2015 · by

Good day. And welcome to Wednesday morning. We don’t have much longer to wait until we find out whether or not the Fed tells us anything that we don’t already know. When the dust settles, I don’t anticipate any earth shattering revelations and I think we’re going to see the same narrative and be left hanging once again. Let’s kick off Hump Day with our daily opener from Frank Trotter.

July 28th, 2015 – Vancouver, BC.  I followed Bill Bonner and Steve Sjuggerud onto the stage at the Sprott-Stansberry symposium here.  All of us reflected an optimistically dark viewpoint of the markets, the sub-title of my talk.  Bill spent most of his time discussing what turns out to be one of our largest worries – how does a global system financed by more and more debt continue, or does it come to a halt.  I haven’t quite been able to put my finger on it precisely but this concept is always on my mind.  Steve suggested a number of alternatives for the short term and many more for those with a longer vision.  Grab the conference video tapes for much more detail.

Sitting at The LIFT last night the left side of my table dropped vertically into Coal Harbor separated only by a substantial glass barrier.  Looking east I could see the sea planes landing at the end of their day ferrying sightseers to and from quaint Victoria and likely the Buschart Gardens.  Sunset harbor cruises pulled out of the dock by the Westin loaded with partiers – we’ll be on one tonight for an extended look at the harbor from the water.  On my hike around Stanley Park prior to dinner I sat on a bench looking up at the low mountains to the north knowing they rose ever higher from there.  Did I mention I like Vancouver.

Back at the conference, mining legend Robert Friedland, Executive Chairman of the Ivanhoe complex, gave me more confidence in resource investing, especially copper.  He noted a couple things that are relevant.  In his view since the sale of certain stocks in China is not allowed by the government an alternative trade appears to have been shorting copper and driving that price down.  He also said that as the price declines higher cost mining and refining operations will shut down, likely causing a higher rebound when as and if demand ticks up.  He appears to be betting on it.

Thanks Frank. Taking a look at yesterday’s data, we first had May home prices, as measured by the S&P/Case-Shiller Index, come in lower than expected and remain on par with the reading from April.  In aggregate, home prices among the 20 cities involved with this report appreciated 4.94% compared to May 2014 and keeps the ball moving in the right direction for housing led by Denver and San Francisco. As you know, there are several different consumer confidence reports and gauges but the Conference Board’s version of this data took a large hit for the month of July.

The July reading was originally expected to come in at 100, but instead, it came in at 90.9 and the June figure was revised downward to 99.8. The 90.9 reading, which was the biggest drop in nearly four years, also marked the lowest figure in ten months while the consumer expectations (over the next 6 months) component fell to the lowest since February 2014. Lynn Franco, director of economic indicators at the Conference Board, said a less optimistic outlook for the labor market and perhaps the uncertainty and volatility in financial markets, prompted by the situation in Greece and China, appears to have shaken consumers’ confidence. Most economists are writing this off as a blip on the radar screen and already putting the bad news in the rear view mirror.

The July Markit Services PMI index as well as the composite PMI index, which includes both the manufacturing and service sectors, increased during the month to a reading of 55.2. The Richmond Fed manufacturing index came in much better than expected by posting a reading of 13 instead of the expected result of 7. When it was all said and done, we didn’t see much market reaction to these reports as many are holding their breath until after the Fed meets this afternoon. As I mentioned up top, I don’t expect to see significant changes to the guidance, but it’s all about the suspense. The only other data out today is the pending home sales numbers for June.

With that said, the commodity currency rally in place prior to the US trading session was able to keep its legs throughout the day as the top four performers yesterday were the New Zealand dollar, Australian dollar, Canadian dollar, and South African rand. The kiwi finished with over a 1% gain while the others came in just under that mark. All in all, most currencies traded sideways for a majority of the day and remained in tight ranges so there wasn’t much to evaluate. The Swedish krona finished with a sizable loss of 0.70% after June retail sales slowed a bit, but other than that, everything else was in tight grouping.

With that said, however, the Brazilian real had an eventful day but you wouldn’t know that if you were just looking at the currency returns as measured by the open compared to the close. The real actually traded down to over 3.43 after S&P changed their outlook on Brazil’s credit rating to negative, indicating budget concerns and ongoing investigations into public officials as the basis of their outlook downgrade. The currency rallied up to 3.3634 as I was heading home last night so I would have to speculate the central bank was intervening in the currency market in an attempt to stop the bleeding, which has worked for the time being.

As expected when I came in this morning, the currencies are in stand-by mode and just waiting around for the Fed. The Chinese stock market had a day of positive trading and nothing major happened during European trading, so there wasn’t much of anything to upset the apple cart going into the US trading session. As a result, most of the currencies and metals will be on the sidelines until this afternoon. We did have New Zealand central bank governor Wheeler say that additional rate cuts are likely but indicated that we shouldn’t see any large cuts unless the economy was moving toward a recession. I did see where the Athens stock market is one step closer to re-opening after the ECB gave their blessing yesterday so Greek officials are working to put the finishing touches on the details.

Currencies today 7/29/15. American Style: A$ .7301, kiwi .6670, C$ .7717, euro 1.1034, sterling 1.5638, Swiss $1.0386,  . European Style: rand 12.5397, krone 8.15, SEK 8.5828, forint 280.70, zloty 3.7544, koruna 24.533, RUB 59.4440, yen 123.73, sing 1.3663, HKD 7.7505, INR 63.8761, China 6.1150, pesos 16.2929, BRL 3.3671, Dollar Index 96.803, Oil $47.61, 10-year 2.27%, Silver $14.64, Platinum $981.75, Palladium $621.75, and Gold. $1,095.80

Mike Meyer

Vice President

EverBank World Markets

T.  800-926-4922

F.  888-882-0073

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