Notes From Underground

The mid-day, market-moving announcement from FBI Director Comey resulted in the selloff of the DOLLAR, EQUITIES and RALLIES IN PRECIOUS METALS just after the market had enjoyed the better-than-expected first look at the third quarter GDP. I will try to make sense of both releases from a market stand point and in an APOLITICAL format.

First, I think it is important to view Director Comey’s surprise release from the perspective of BUREAUCRATIC POLITICS, which is one of the most powerful potential mechanisms in the format of 2+2=5. All political parties are disturbed by Comey’s surprise because after the Congressional panel that questioned the FBI Director on why he didn’t “indict” Clinton there were accusations that Comey bent to political pressure from the White House. In the months following Comey’s decision, rumors persisted that several FBI investigators of the Clinton emails were going to come forward with further accusations because they believed that politics had “trumped” justice. Did Comey fear rogue FBI agents bringing forth evidence against Hillary Clinton, further tarnishing the credibility of the FBI? We don’t know.

Did Comey himself feel used and abused, so did he wait until the end of the campaign, when his revenge against his superiors would prove too late to bury and thus have the greatest impact? We don’t know. But we do know that much of the energy of the campaign has been distracted to counter the impact of Comey’s revenge. This is bureaucratic politics, with its pernicious effects on the election and from this blog’s interest, financial markets. As Clinton’s advisers were putting out responses to the Comey statement, the equity markets calmed and closed basically unchanged on the day.

The EURO, SWISS and YEN stayed bid, and GOLD and silver also held their late rallies, although sold off from the initial highs on the Comey “vendetta.” Whatever the outcome to this use of bureaucratic influence, readers of NOTES must always be aware of political fallout at times of increased electoral concerns. The coming elections in the EU, from Renzi’s referendum to the French and German elections, will be fraught with political and bureaucratic intrigues. I remind all my readers, the most powerful bureaucracies are the ECB and the European Commission in Brussels. Unelected officials have the power to corrupt and with their absolute sense of certainty in their policy decisions, they will corrupt absolutely. Failure to understand this will result in huge financial losses.

Second, the GDP data released on Friday morning was above consensus. The pre-release guesstimate  was for 2.5% third quarter growth while the actual “real” number was 2.9%. I use real in quotes because this number will be adjusted two more times and using the data from the Atlanta Fed I would guess that the initial release will be revised lower. The most interesting result was that the BONDS, GOLD, DOLLAR and EQUITIES performed in opposition to popular wisdom. The BONDS and GOLD made their lows on the first 10 minute price bar after the release as did the EURO CURRENCY and other currency futures.

This is now the market rule: The algo headline readers see the headline and react and because the number was higher than consensus. As a result, the IMMEDIATE NANO SECOND response was to push yields higher resulting in the selloff of all interest sensitive asset classes. But as the markets digested the context of the GDP data, uncertainty about REAL U.S. growth leached into the market. The GDP reflected a large inventory buildup as well as a TEN BILLION DOLLAR export of SOYABEANS in the third quarter. The weakest component in the GDP was the small increase in consumer spending at a mere gain of 2.1%. But back to the SOYABEANS. The huge amount of U.S. agricultural export is not sustainable as it really reflects well on the Chinese as being astute traders. The SOYABEANS are a little higher on the year, while corn and wheat prices are lower.

The Chinese YUAN is weaker on the year versus the U.S. dollar, making U.S. grains more expensive for the Chinese .But the grain exports took place prior to the recent 3% drop in the yuan. As I have discussed over the last six years, the change in Chinese food consumption has moved the global demand for protein to a much higher curve. This year has seen record global soyabean production and yet BEAN prices are moving higher. But there is a finite supply of grain. This GDP release reminds me of Great Soviet Grain Deal of 1972, which sent prices skyrocketing. The U.S. cannot continue unloading its grain bins so THIS GDP RELEASE IS SUPPORTED BY A POTENTIAL ONE-OFF data point making the U.S. economy softer going forward.

The low consumer sending number is more bothersome as the bite of rising medial insurance costs through higher premiums and raised deductibles, which should be a real issue of this ridiculous presidential campaign. But so it goes. For traders and investors mired in the ridiculousness of FED communication policy. If the FED is going to raise rates in December why did the interest sensitive assets diverge from the headline impact? The lows made in the euro and gold should be good tests for the market’s respect for the underlying market fundamentals.

Also, the U.S. yield curves will provide us with the market’s mood towards the Fed. If the GDP was a heavy weight on the FOMC then the yield curves OUGHT NOT have steepened as the short-end yields SHOULD have been driven higher? There are four central bank meetings this week to keep our focus as well as the unemployment report on Friday morning:  The BOJ, RBA, FOMC and BOE all make decisions on rates.

Tags: Chinese Yuan, Clinton emails, Fed, GDP, soyabeans

This entry was posted on October 30, 2016 at 5:22 pm and is filed under data, United States. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.