The release of the minutes from the October FOMC meeting sent markets lower and bond yields higher, on information that, on second glance, was not really news at all. After some profit-taking, U.S. markets opened higher, and the dollar lost the gains it has seen after the minutes’ release. Precious metals are still attempting to recover, after gold was hit so hard yesterday afternoon that “breakers” were tripped that halted trading for 20 seconds. That was the second time yesterday that that happened, after an early morning dump of 1,500 contracts at once caused sell stops to trigger and halted trading.
The minutes revealed that several Fed officials wanted to see a tapering of the $85 billion a month in bond purchases (known as QE, or quantitative easing) in “the next few meetings.” The next three meetings of the FOMC are December, January, and March. It’s hard to imagine tapering before Christmas, as its unlikely that Bernanke would do that at the end of his tenure and leave Yellen to clean up afterwards. Many brokers and analysts see this as a typical market overreaction by those trying to second-guess the Fed, though this morning’s recovery on Wall St. points to some of the sell-off late yesterday as being people locking in profits as they prepare for the end of the year.
Lackluster data out of China put a damper on Asian markets, though the weakening yen helped the Nikkei to gains. The HSBC flash PMI for China showed a reading of 50.4. This signals expansion, but is below October’s 50.9.
Similarly in Europe, the Markit EU PMI came in at 51.5, down from October’s 51.9. analysts were expecting a small improvement to 52.1. EU markets were already down on rumors that the ECB was contemplating negative interest rates for banks, but that talk was squelched by ECB President Mario Draghi, “pleading” with people to not construe anything he said as meaning negative interest rates were looming.
First-time jobless claims were down a surprising 21,000, with 323,000 people filing for unemployment benefits last week. This is the lowest rate in over a month. Some experts warn that the numbers may have been affected by last week’s Veteran’s Day holiday, giving people one less day to file claims last week.
The Producer Price Index was down 0.2%, though the “core” PPI (finished goods minus food and energy) was up the same amount.
Gold was the victim of two sell-offs yesterday that were large and fast enough to trip breakers on the commodities exchange and halt trading for 20 seconds each time. It’s finding it hard to recover in early morning trading, as Treasury yields spiked late yesterday. All precious metals are trading at or near yesterday’s levels post-FOMC release.
The Fed continues its mission to de-link QE bond purchases and low interest rates in the market’s mind, in an attempt to prevent the reactions in equities it sees every time the subject of tapering comes up. This is an ongoing process, which is another reason to doubt a December taper.