The Fed doesn’t know what to do now!

While employment and housing are improving, global economy, specially China seems to be in trouble and the Fed is caught wondering what it should do. I believe if China problems persists and its growth is further hampered then we could see lower rates in coming months despite indications by the Fed that it could start increasing rates this fall.

As reported this morning by the TBWS Group, the take away from the FOMC minutes and events since the meeting, namely deteriorating global economic outlooks most still are holding to a Sept increase. The stock market took a hit yesterday and early this morning the key indexes started lower suggesting equity markets think Sept. Early trade this morning had the 10 yr down another 2 bps from yesterday’s 8 bp decline to 2.12%, at 8:30 today at 2.10%. MBS price prior to weekly claims +10 bps from yesterday’s close. Mounting concern that global growth is weakening and uncertainty about the timing of a U.S. rate increase fueled a second day of losses for European stocks. The market is seeing increased volatility as investors assess the timing of a U.S. rate increase.

The market has prepared itself for the first rate increase by the Fed since the market crash years ago but global economy will keep the Fed wondering what the right action would be!

Update 08/21: If the break under 17,000 holds on the Dow Jones then 16,000 is the next level of support, after that 15,000 has strong support then at 12,000. Stocks will fluctuate with every bit of news out of China and now a possibility of skirmish between North & South Korea. Despite all of this, it seems that for now we have seen the top for Dow Jones at over 18,000.

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