New York Fed President William Dudley may have shattered some bond market complacency when he stated the central bank could potentially raise interest rates as soon as next month. Additionally Atlanta’s Fed chief opined that he is confident growth is accelerating, setting the stage for at least one hike this year.
The dollar trimmed its drop of almost 2% on these comments. Oil however rallied and equities fell nominally. Treasuries were lower.
2016 has been a volatile year surrounding monetary policy assumptions. After the proverbial “liftoff” in December 2015, officials have twice cut their projections for the number of hikes this year from four to two and then one.
Today’s release of the Minutes from the July FOMC meeting may again alter these projections.
2016 violence in the crude is perhaps the only sector of the market that has been more volatile than monetary policy assumptions. As all know oil fell about 40% during the first six weeks of the year than rallied about 85% in approximately four months and then fell about 22% in six weeks only to rally over 20% in two weeks.
Will crude continue to follow 1999’s path and close 25% higher from today’s levels from a combination of stronger demand and lower supplies? As noted last week, the similarities between 1999 and 2016 are uncanny.
What will happen today? Will activity continue to be muted until the release of the Fed minutes? Yesterday’s data indicated an unexpected surge in housing starts in July to the fastest pace in five months while factory production increased more than forecasted.
Last night the foreign markets were down. London was down 0.15%, Paris down 0.53% and Frankfurt down 0.97%. China was down 0.02%, Japan up 0.90% and Hang Sang down 0.48%.
The Dow should open flat as oil is lower because of a higher dollar, the result of another change in monetary policy assumptions. The 10-year is unchanged at 1.58%.
