Destabilizing speculation

PBoC injects $ 14 billion into economy, Fed expected to reveal dot plot

  • Evergrande is expected to make at least one of its payments tomorrow – PBoC is pumping $ 14 billion into the economy.

  • Asian markets are mixed, European markets rising and US futures rising as well.

  • Countdown to the FED…. T- 8 hours. until the announcement – What will the Dot Plot suggest?

  • I’ll take the Martini please.

Stocks rallied, sold, rallied and ended the day largely down …. the Dow lost 50 pts, the S&P lost 4 pts, Transports returned 28 pts while the Nasdaq gained 32 pts and the Russell added 4 pts… .. Not that bad considering Monday… ..It was as if the clues were getting out of hand as the Evergrande drama unfolded on the world stage, helping fuel a sale punitive which left many bruises while others found opportunities.

Add to that the concerns about what we’re going to hear today at 2pm from the FED and that was all the algo needed to hit the SELL button…. Now look – how long have we been talking about market stretching? How long has it been said that the Fed has to move? How long have we discussed that we have to undergo withdrawal… and when it does – how many people immediately start screaming? It’s really funny – because which would they prefer – A slow and steady decline or a rapid and decisive decline? For my part, I prefer the quick, decisive move – it’s just more exciting… and Monday’s retreat provided a lot of that.

Now, concerns that the Evergrande problem was going to become another Lehman moment turned out to be a false narrative and, as I pointed out, the Chinese government would most likely step in to prevent a collapse … and prevent this latest crisis. to destabilize. their economy…. Now, to be clear – Evergrande has negotiated a deal that will see it settle a $ 36 million interest payment on its 5.8% September 2025 bond – (that’s good) – BUT there is had no mention of the $ 83.5 million interest payment also due tomorrow or the $ 47.5 million Bond Payment due next week. In a statement, they said “the issue was resolved through negotiations outside the clearinghouse.” Leaving many to speculate that the bond agreement allows Evergrande to defer payment without declaring it in default.

So – there is still a risk that it will go south…. especially if the fallout triggers a real estate crash in China. Overnight, the Peoples Bank of China (PBoC) injected $ 14 billion into the banking system as a sign of support for the country’s financial markets and economy. (Just what I said). Remember, Evergrande is so tied to the wider Chinese economy that fear of default, and then possible global contagion, kept global investors spellbound, prompting Beijing to intervene …… .and I’m sure he’s not happy with that at all…. But this is another story.

Ok – now on the focus for today… and that’s the 2pm announcement by the FED on what’s to come for monetary policy and the US economy… .. Now the expectation was that Jay announces a more definitive timeline on when they intend to begin cutting the $ 120 billion in monthly treasury bill and mortgage-backed securities purchases … and that timeline was for today they would herald the start of a cut in November / December and markets and investors were okay with that – or at least it appeared as if they were okay with it… but after a few key “weaker economic reports” In early September – speculation was rife that the Fed would remain elusive and stay the course and postpone any definitive announcement until October or even November suggesting that the start of the cone would be pushed back to early 2022… ..and so this is the big question … .What will the FED do?

We all know Jay has been pressured to do something …… inflation is HOT, the housing market is very HOT, and many wonder why we continue to support the economy at the rate and pace that we have been doing. at the height of the crisis… ..because the “climax of the crisis” is now in the rearview mirror… ..and it’s time to get everyone back to work and back to normal.

More important than even a cut announcement is the Dot Plot – and remember this plot suggests what the intentions of the various members of the interest rate committee are … and in June – 7 of 18 Fed officials were preparing a early June 2022 raise rates… while others seemed to think it was a 2023 event…. But with inflationary pressures intensifying every day, we can see that the dot chart reflects more support for stepping into June 2022.

Now remember, Jay made it clear that the start of tapering doesn’t mean the start of rate hikes… they’re mutually exclusive – but what does the market think? And while the tapering has been widely telegraphed – that’s not the problem…. the problem will now be squarely on the Dot Plot – so get ready. The FED said the removal of the stimulus would take 10 to 12 months… and the rate hikes would not take place until the end of the withdrawal…. well – do the math – June 2022 is only 9 months away and we are still stimulating….…. just saying.

The 10 years. the yield on treasury bills ended the day at 1.33% as calm returned. Gold climbed $ 30 to find resistance at $ 1,780 / oz and this morning is slightly below $ 1,776. Oil is holding steady at $ 71.50 / barrel.

There was no dramatic movement in any of the areas yesterday…. with 5 sectors up by around 0.10% and 6 down by around 0.10%. Value trade is only 13% year-on-year while growth trade remains in the lead at + 18.5%.

Dow futures are up … 209 pts, S&P are up 26 pts, Nasdaq is ahead 50 pts and Russell is up 16 pts, suggesting that the market is expecting what Jay offers clarity on a start date while assuring investors that rates will stay low until 2022. Expect all kinds of chatter all day long on trade channels as everyone will vote on what the Fed will do.
Today’s green data, in addition to the FOMC rate decision, includes mortgage applications and existing home sales – exp down 1.7%.
European equities are all up in all areas…. paying no attention to the Chinese debacle and seemingly not at all concerned about what the Fed will say. Eco data for Europe includes Flash consumer confidence for the ZE (euro zone) for September, Italian industrial sales figures for July and Dutch consumer spending…. None of them will be a real market driver for investors. As of 6:30 am, the region’s markets are up between 0.5% and 1.25%.

Bitcoin is trading at $ 43,000 and Ethereum at $ 2,900 – as they are both struggling to recoup recent losses.

The S&P ended the day at 4354 – after kissing 4400 and then testing as low as 4350 – we remain in both trendlines…. the middle line offers support at 4330 while the short term trendline offers resistance at 4435. So we have a 100-pt. the gap between support and resistance and today’s announcement will result in the next move – and if futures are any indication – the next move will be up and through resistance. But let’s see because everything will be a question of interpreting what Jay says…. remember – everyone hears the news a little differently…. some will accentuate the positives while others will accentuate the negatives.

Gray goose martini

Here is how I order it –

I would like a Gray Goose Martini – shaken, not stirred, on the rocks with 3 olives stuffed with slightly dirty blue cheese …… and a side of ice water.

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