What will the Minutes from July’s FOMC meeting suggest scheduled for release tomorrow? A lot has happened since the late July meeting including further declines in oil, a Chinese devaluation and strong home and auto sales.
Historically homes and cars lead the economy out of a recession. Auto sales are on a pace to post record annual sales amounting to 17.5 million units eclipsing the 2000 peak of 17.4 million sold.
The National Home Builder’s Sentiment Survey (NAHB) was the greatest in 10 years. Home affordability is the greatest on record and home ownership is at the lowest level in almost 50 years. Mortgage delinquency rates are at the lowest on record (circa 1999) according to the NY Fed. Conversely rental rates are at a record.
Regarding oil, crude is down almost 30% since June, the sharpest decline in history. Such a sharp drop in crude is hypothetically bullish for the consumer albeit such an increase in retail sales did not occur when crude declined sharply in the November-March period.
And then there is China. Is the devaluation bullish or bearish? Will the devaluation stimulate demand or is it a mark of desperation? I can make an argument that the entire industrialized world has devalued its currency via the various stimulus programs enacted so why would China be different. It is the proverbial race to the bottom.
I can also argue the major reason for the rise of the US dollar is the constant banter as to when not if the US will increase interest rates, the result of greater economic growth than the rest of the world [and growth stimulated by housing and autos]. As stated above all China is doing is playing catch up with everyone else for the exception of the US.
Last week I used words that I had never publically had written, words such as “manipulated” or the “market stacked against all but a few.” My view has not changed even though I will now write most hedge funds are languishing and there is now at net outflow of funds from equity ETFs.
I think a strong argument can be made that there is a vast pool of money controlled by a small number of institutions decimating one sector while bidding up another. For example the shorting oil while going long the dollar.
While I cannot definitively write “there are a small number of institutions” I can definitively write short and long interest on both oil and the dollar, respectively, are around or at record levels according to the Commodity Futures Exchange.
What will happen today? Yesterday equities rose nominally on the housing data. There is more housing data posted today.
Last night the foreign markets were mixed. London was down 0.13%, Paris down 0.14% and Frankfurt up 0.02%. Japan was down 0.32% and Hang Sang down 1.43%.
The Dow should open quietly lower. The Yuan traded lower last night but at this juncture the decline is not weighing heavily upon US equity futures. Some of the largest retailers are posting results today, results that are mixed and are offering evidence the drop in oil is not translating into higher retail sales. The 10-year is up 3/32 to yield 2.16%.