A Benign Fed Meeting

STOCK INDEX FUTURES

Global equity markets were higher with the exception the TOPIX. In fact, with the passing of the Fed meeting and today’s gains following impressive gains yesterday, bullish buzz looks to control equities in the coming two trading sessions. While the latest US daily infection count was only 121,918 for September 21st, and that reading is down significantly from the high levels seen over the last 2 weeks, we are not yet ready to suggest the Delta variant surge is coming to an end. Earnings announcements will include Accenture and Darden Restaurants before the Wall Street opening while Nike and Costco Wholesale report after the close.

S&P 500: With a 4 day high early today following an impressive rally yesterday and given the passing of the feared FOMC meeting, more gains are in order in the S&P. While the Evergrande saga appears to have been settled for the short term, the Chinese government has warned local and provincial governments of the prospect of the eventual downfall of the company. From the economic report front the equity markets have likely shifted into a position where positive economic data is needed for further gains. In other words, the markets accept the beginning of tapering before the end of the year, and the focus is likely to shift to the probability of companies posting another round of strong earnings.

CURRENCY FUTURES

DOLLAR: We are surprised that the dollar has not extended downward aggressively following statements of optimism toward the US jobs market from the US Federal Reserve yesterday. Furthermore, we are surprised that the dollar is not extending downward given the markets lack of anxiety this morning from Chinese central government warnings to state and provincial governments to prepare for an eventual downfall of Evergrande.

SWISS: The bull camp in the Swiss should be discouraged by the lack of upside action over the past 24 hours, as the currency was unable to sustain an upside breakout following news that US tapering would likely not begin until the November FOMC meeting.

CANADIAN DOLLAR: While the Canadian has not risen above a 5-month downtrend channel resistance line drawn from the June and September highs at 79.47, the pattern on the charts is clearly bullish. On the other hand, the Canadian is rising against market fears that the beginning of US tapering would be a negative to the Canadian dollar.

INTEREST RATES

In retrospect, the net outcome from the Federal Reserve open market committee meeting thickens overhead resistance in bonds and notes with the Fed moving in a position to begin reducing asset purchases. In fact, the Fed indicated inflation readings have obviously exceeded targeting and in their own regard signal a need to taper. The Fed Chairman also indicated it was his opinion that the test of substantial improvements in the jobs market is all but met. Another limiting force for treasury prices today is a 2nd straight day of significant global equity market gains. Unfortunately for the bear camp, overnight Australian, European and UK PMI readings came in disappointingly soft and FedEx earnings earlier this week missed expectations because of surging costs and labor shortages. With the FOMC meeting past and the treasury markets for the most part unwilling to begin pricing in tapering (many economists think slow tapering is initially of little importance) it will likely take improvement in weekly jobs news and a strong September US jobs report in the first week of October to definitively turn the trend down. However, treasury prices into yesterday’s high and today’s early highs were in proximity to consolidation highs generally respected over the past 2 and half months and therefore it could be difficult for prices to breakout up without a substantial and sustained economic anxiety event. Today’s US claims data is likely to be minimally bearish to prices, but treasury prices have continued to display “bullish resiliency” and without bigger than expected declines in both claims and ongoing claims, downside action could be hard-fought and difficult to sustain. The North American session will start out with a weekly reading on initial jobless claims which are forecast to have a moderate downtick from the previous 332,000 reading. Ongoing jobless claims are forecast to have a modest weekly downtick from their previous 2.665 million reading. The Chicago Fed’s August national activity index is expected to have a minimal downtick from July’s 0.53 reading. July Canadian retail sales are forecast to have a modest uptick from June’s 4.2% reading. The Conference Board’s August reading on leading indicators is expected to have a modest downtick from July’s 0.9% reading. The Kansas City Fed’s September manufacturing index is forecast to hold steady with August’s 29 reading.