Global Market Analysis, September 23


The Fed Decision

As widely expected, the Fed left interest rates unchanged at the September 21, 2016 FOMC meeting. The Fed felt things were balanced, and was looking for a pick up into the fourth quarter of 2016. The Fed also left open the possibility of a rate hike at the December FOMC. There were three Fed dissenters, the highest number since 2014. The BOJ also made an announcement to maintain its QE programs and do some switching of long maturities for short maturities (the BOJ’s version of Operation Twist?).

The Recovery (Not)

The “Gryphon Review” is presenting an examination and partial analysis of a Harvard Business School study entitled “Problems Unsolved and a Nation Divided.” Our examination does not cover the entire study, but focuses on portions relating to how the US economic performance is faltering, and how the US business environment is eroding. All of this is occurring against the backdrop of political paralysis, as the divide in America, in particular, is one of growing polarization and discontent. Against this backdrop is a world in disarray, with the wars in the Mid-East, conflict in Eastern Europe on the Russian border, and the ongoing confrontation in the South China Sea with China. These confrontations bear some similarity to the wars that led up to the twentieth century’s greatest conflicts of WW1 and WW2. Not surprisingly, many of the same “actors” are deeply involved, as they were involved in those earlier conflicts. The “Gryphon” presents numerous charts, most as repeats from the Harvard Business School study, but a few others as well. Fascinating that an esteemed organization such as Harvard Business School is seeing and repeating the same issues that many of us point out. We can only hope those in government and the central banks pay attention as well.

The Economic Numbers Continue to be Weak

The past week in review. Once again the numbers released during the past week, including the inflation numbers, retail sales, industrial production and capacity utilization, housing starts and building permits, continue to disappoint or underwhelm. The trends are largely down. Numerous charts are shown.

Weekly Market Review 


Stock markets around the world rallied following the Fed and BOJ announcements that continued to support ZIRP, NIRP and endless rounds of QE. The S&P 500 could even rally to new all-time highs. The Nasdaq did print new all-time highs, the only market to do so, so far. But massive overhead resistance, growing divergences and signs of tiredness in the market could limit any upside, even if we did see some more indices print new all-time highs. The new all-time highs are, it seems, only for the US markets, as few if any others globally are near their former highs (London FTSE may be the closest). There is major resistance for the S&P 500 up to 2,300, but a breakdown could get underway under 2,125.


Our focus is not so much on bonds as it was on the surprise decline in the 3-month Treasury bill yield that fell from 0.37% on September 12, 2016 to 0.22% on September 21, 2016, following the Fed announcement. It was all the more surprising given that the Fed Funds rate remained at around 0.40%. Bond yields fell in the US and elsewhere given the continuation of the loose monetary policy that has been in place for what seems like forever.


The US$ Index and the euro continue their meandering that has gone on for some 18 months in an ever-narrowing fashion. The charts suggest that since we are nearing the apex of the current triangle we should soon see a resolution – one way or the other. But we have in the past also seen it meander right through the apex and create a new pattern. One way or the other, a resolution at least one way up or down should soon happen. The US$ Index eked out a gain this past week while the euro fell, but the star on the week was the Japanese yen that appears to have the potential to move to new highs.

Gold and Precious Metals

Gold and silver both reacted positively to the Fed announcement, and it became a classic case of ‘sell the rumour’ (the Fed is going to hike interest rates) and ‘buy the news’ (the Fed either hiked or stood pat, it didn’t really matter which). Despite the jump, gold has resistance above at $1,350/$1,360 and $1,380/$1,400. Support continues at $1,300/$1,310, and once again held. This was the third rejection of the lower level. Silver in particular had a solid upward jump this past week, and the gold/silver ratio fell as a result, as silver continues to lead, as it should. The gold stocks had a strong positive week. Gold sentiment had fallen quite low, and we noted this past week that the commercials covered some of their short position. Positive seasonals could now allow gold to move higher, but the key is that gold needs to take out the $1,380/$1,400 resistance if it hopes to get towards $1,500. 

You can download a free copy of this week's full report here

Disclosure: None.

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