The US Federal Reserve's indecision making markets nervous

Market participants were scarcely off their recent rebounded confidence at the start of the week heading into a crucial week for the US Federal Reserve whose annual Economic Policy Symposium to be hosted in Jackson Hole, Wyoming from the 25-27th August evolving into an uncertain distraction away from the focus on buoyancy driving markets higher.  

The annual symposium sees Fed officials from around the United States gathering in one place to discuss economic circumstances the country is absorbing as a result of monetary policy implemented throughout the year. This year's theme: Designing Resilient Monetary Policy Frameworks for the Future giving a good idea what might be on many officials minds.

Last week we saw the Fed release the FOMC minutes of the meeting that happened in July which highlighted a deep divide amongst members in deciding whether the US economy was strong enough to sustain an interest rate hike. Some prominent regional members such as William Dudley, president of the New York Federal Reserve expressed his view that the central bank couldn't wait much longer to implement the second round of rate hikes whilst relaying a tone that set the scene for an imminent increase expected in September.

Needless to say his thoughts weren't shared amongst all decision makers with half the participants opting for a stay of execution in favour of  more evidence from economic data regarding the strength of the economy.

Yellen’s speech at Jackson Hole set to dominate mood on Wall Street https://t.co/zyTWExtoO2 pic.twitter.com/ej5XYOfeys

— Yahoo Finance (@YahooFinance) August 22, 2016

I wrote an article about this dilemma the Fed had found itself in saying the split in opinion was creating uncertainty in markets which would be met with trepidation. I went further on to discuss two possible scenarios that could happen depending on the type of action the Fed decided to take saying it was likely for them to buckle under the pressure of global policy alignment that's become the norm over the past few decades and follow its developed nation peers in pushing for softer monetary conditions from a low base.

Yesterday we heard another prominent figure, vice chairman of the Federal Reserve Stanley Fischer reiterating Dudley's comments on the strength of the economy and necessity of an interest rate hike. He said the Fed's target's were close to being met on most economic indicators with positive remarks about employment but recognising the economy has done "less well"than hope for.

It's getting down to crunch time for the Federal Reserve to choose the direction of its course with both outcomes having major impacts in the long term scheme of things.

The Fed's integrity may have suffered in the months gone by since implementing the first interest rate hike in December while over confidently saying it expected to hike rates four times in 2016, a statement I had said showed the miscalculation of an influential policymaker.

This possibly provides an explanation why some FOMC members have come out strongly with the intention to hike conscientiously knowing how important integrity remains in building trust with the public in the decision it takes. The absence of such virtue evades policymakers from any conviction on the part of participants in finding relief in future intervention measures and thus a failure in its effectiveness.  

US Federal Reserve continues to be under pressure

Minutes of the FOMC meeting that took place in late July showed members of the US Federal Reserve were cautious in their belief towards hiking interest rates for a second time since initially setting the trend in motion last year in December. Although there was a considerable amount of debate whether the US economy was fit enough to sustain a fresh hike, it was decided that more certainty in terms of members full agreement on the timing of the move would be necessary.

We saw remarks earlier in the week from New York Fed President William Dudley emphasising a number of points directly showcasing the strength of the economy whilst going on further to say an interest rate hike was still on the cards at the Fed's next FOMC meeting in September.

But as surprising as it may seem, markets hardly reacted to the enticement by Dudley instead remaining relentless in its view that the current progression from other central banks around the world in extending bond-buying programs while simultaneously exploring the "new" lower bounds of interest rates underneath zero percent was slowing down the Fed's ambitions.      

#Fed minutes this week may show why Yellen & co kept timing vague on next rate increase https://t.co/gw5pirYkWY pic.twitter.com/NmnIWAwiNv

— Bloomberg Economics (@economics) August 16, 2016

Inasmuch as the economic indicators relied upon by the Federal Reserve to make a decision constantly show positive signs within the US economy the issue of enforcing an interest rate becomes a different matter altogether with the alignment of countries economic policies over recent decades making pulling the trigger harder than it looks.

It requires a consensus from all other nations in following the direction of the move although not necessarily to the exact same timing as the other. If we looked at the current global monetary policy stance that's dominating headlines, it doesn't appear wise to apply discretion in the contrary direction which places the Fed's expected trajectory under scrutiny.

Should the Fed see a divergent policy appropriate it would mark the first signs of an uncoupling of a global understanding where the economic decision taken by an individual country no longer influenced by its impact or effects on its counterparts.

Or contrary to this we'll see a less stringent pathway of interest rate hikes with an eventual outcome of the Fed buckling under the pressure of a joint global effort to exploit monetary policy to its withers end till the point of financial catastrophe.    

The longer the Fed stalls hiking rates the more likely it'll fall prey to the second scenario because with every meeting that passes with no action registered a wave of doubtfulness will fill the thoughts of market participants who've already become accustomed to "easy" money to drive up asset prices higher and eager to test central bankers commitment further.    

Technical Tuesday: Intel Corp.

Monthly

The long term uptrend looks an attractive proposition when considering the scope of movement that is possible for this stock with the price reversal that happened during the end of last year providing the strongest evidence of bias to the upside. Since reaching its highs in the beginning of 2015 the price has remained lethargic but exhibits traits of sufficient support just beneath $28. 

This has been highlighted by the horizontal red line that's acted as a robust buying areas on two separate occasions within a short span of time. On the first occasion the price rallied off the uptrend as mentioned in the previous paragraph but subsequently met resistance which forms a pivotal part in the progression of direction in the next move.  

Current price action is situated at this resistance zone leaving many wondering whether the return move back from the pullback might have reached its end. This wouldn't be far fetched if you incorporated the stochastic into your decision making where it lies in the overbought region however there are a number of other technical points that speak contrary to this analysis. 

Firstly you'll recognize a neatly formed inverted Cup & Handle formation at the top of the rally, a marked sign that the extended run might have become exhausted. This has proven true but only in the sense that we haven't witnessed much movement in either direction whereas one would've thought there could have been a signal of trouble below. 

Those who might've anticipated this may be stuck in the trade which could explain why the stock is currently stuck within another price range. It's important to note that there had been no confirmed break to the downside on a closing basis which might suggest the numbers participating in the short side of the trade might be few and far between. 

Should we see a break to the upside though it can be expected for price to rally hard given the position of the RSI where the indicator is set to break to its highest levels in almost two years. This signals an intention from the bulls to use momentum in driving price higher with the most obvious target being the all time highs. 

Weekly

Taking a closer look on the weekly charts it appears that a classic Head & Shoulder pattern has been in place for some time. The formation took a little over a year to form and broke to the downside in July last year but the move many bears had hoped for failed to materialise after a retest of the neckline proved weak with the bulls taking full advantage and driving prices higher. 

Coincidentally a nullification of such formation would require the price to reach above the highest high of either shoulder with the left shoulder being such in this particular case. Observing the rally off the support just underneath $28 as mentioned in the monthly analysis we now see the highs of the left shoulder provided stiff opposition to the bulls offensive. 

Following on from this a smaller technical formation of a Cup & Handle in relevance to the pattern just discussed gave bulls a sense of optimism again with a clean break through the top of the neckline and onwards to resistance which brings us to where price is situated presently. 

A similar occurrence in the stochastic as we saw on the monthly the indicator is overbought and headed downwards suggesting pressure on the buyers to perform but the RSI has produced a significant uptrend on the indicator that also confirms the buyer's intentions from the monthly. 

Two scenarios could play out here; either buyers succumb to the selling pressure and scale the price down to the $28 support level or they find a positive news story to leverage themselves over the top of the $35.50 resistance which would make $38 an attractive target. A move in either direction seems tentative so its certainly one to watch closely in the days ahead but my intuition tells me it could go to the upside. 

BoE decision to drop rates will have major consequences

In the middle of July the Bank of England was expected to drop interest rates to a new all time low in its history but governor Mark Carney held off the destined move saying the impacts from Brexit had yet to show through in the economic data officials had used to guide them in their decision possibly showcasing some sort of integrity still left in a major central bank.

Three weeks later and the BoE now has a clearer picture to where the British economy is headed with many believing the latest set of economic indicators allow the central bank enough reason to lower the benchmark interest rate for the first time in seven years.

At the time I wrote an article detailing why I thought that a drop in interest rates in the UK would add further pressure on the US Federal Reserve who subsequently opted for normalisation of rates rather than continuation of quantitative easing measures to remain in place.

In years to come hindsight will afford us the lesson of realising that the Fed's decision to go against the majority of its significant counterparts could've possibly be the right course of action but the effects of globalisation together with the alignment of countries economic policies to steady the world's direction of activity might've played a hand in unhinging any common sense that would've entered the fray.

If the BoE does indeed cut rates it simply yields to the coercion from fellow central banks who protect torpid governments who fail to enact the necessary actions to revert an economic crisis of epic proportions from taking place.  

First UK interest rate #BoE cut in seven years expected | #Brexit pic.twitter.com/x98b2ghsJ4

— Andrea Aquaro (@AndreaAquaro) August 4, 2016

Do negative yields call for bold new economic policy?

An emerging topic that's gaining traction of late is the tremendous shift seen in developed nations bond rates with some nations sovereign debt trading at negative yields, a world first. The ever expanding debt load that's fallen below zero yield has begun consolidating after initially bulging outwards at an alarming pace but could be fuelled further if investors search for positive return is exacerbated by the enormous demand for both US Treasuries and UK Gilts.

As of today the US 10 Year Treasury yield recorded an all time low as buyers stormed through sellers demands as fears from Brexit flood the market with worry and the outlook for the interest rate environment drifted away from expectancy of normalisation after a lengthy period near zero, a once thought lower bound of rationality.  

Stocks are overstretched and have been for a while considering the previous quantitative easing measures that had were in place for some time which prompted companies to take advantage of the low cost of borrowing to repurchase stock in the open market. Although the effects of this helped extend the bull market by an extra year or two the party soon came to an end when the taps turned off and earnings were suppose to continue their growth.

This hasn't happened, in fact earnings are fading fast along with the global economy that can't find the right footing to leverage the mounds of debt created to act as stimulus.

The US Federal Reserve divergent plan to act in a different manner to its developed nation counterparts is a far greater mission than had been expected which is why investors foresee it departing from this policy stance and reverting back to its old habits of printing money till the cows come home.

Why is this all bad?

Simply because the world cannot function on the perpetual money creating scheme that has so many politicians fixated with in an effort to cover up their own flaws. We've entered a new era of economics and the need to find policies that branch off from convention yet address the evolutionary problems that constantly grow as year go by cannot be without fail.

We trust the message of the bond market over stocks.#stocks vs #bonds$TLT vs $SPY#GrowthSlowing@KeithMcCullough pic.twitter.com/EvlfjctE6o

— Hedgeye (@Hedgeye) July 1, 2016

Is the S&P 500 ready to rally past its all time highs?

Wealth management firm Merrill Lynch believes the lengthy period of time the market has been waiting to register fresh highs on the S&P 500 is a bullish scenario for investors. They went on to say that investors will be hesitant to chase the market back into the previous highs but if it were to happen it would definitely restart the bull run that's been firmly in place since 2009.

In yesterday's blog I broke down analysis of the S&P 500 on a quarterly and weekly basis saying the chart exhibited a few elements that would suggest an upward move on the way however I also warned that the current poor economic outlook was affecting sentiment and could possibly unhinge any promise coming from the rallies.

A number of uncertainties continue to haze the long term view with the impending British referendum "Brexit" sending volatile impulses through the global financial system together with the experimentation of negative interest rate policy in both Japan & Europe as well as dim economic activity out of US that's strong enough to showcase as one of the few countries in the world growing but weak enough to give way under the weight of an interest rate hike.

It seems as one economic calamity falls off the radar screen another appears hastily to fill up the void with panic instead of settledness. How long can this farce last? Long enough for many to believe there's still a chance to see an uptick in stock indexes around the globe. With every wake of additional stimulus added to an existing program the influence of monetary policy diminishes, exposing financial markets to the wrath of fear with no controlling body able to stop it.

Ironic that this would come from a firm that became so blinded by its own greed only to be burnt severely in the midst of the Financial Crisis and subsequently saved from the shame of bankruptcy by the Bank of America who found themselves forced rather than considered to act. One would've thought the painful lesson taught during this close encounter should have reinforced the idea that caution might be the best approach when evidence shows the counter to your beliefs.

Merrill: Long pause healthy for bull market https://t.co/OAcCpAul5W via @CNBCPro

— CNBC (@CNBC) June 8, 2016

Travelling Technicals with Global Indices: Dow Jones Industrial Average

The world's most renowned stock index, the Dow Jones Industrial Average has a rich history of tracking stock performance having been published on the 26th May 1896 by its formulators financial journalist Charles Dow and statistician Edward Jones to study the price movements of industrial companies listed on the New York Stock Exchange that allowed for an additional format of analysis at a time when most analysts used the convention of fundamentals when assessing the degree of fair price of a company's value.

Many would say this heralded in the era of technical analysis as a legitimate form of the study of price movements that point the precise price where equilibrium could be found and then decipher whether the particular stock was overbought or oversold. Although most who use technical analysis do so in the hope of catching short term speculative moves in trading, the liquidity it generates through participants who use it plays a vital part in the stock market process.

The index tracks the 30 largest listed industrial companies listed on the New York Stock Exchange however the swell of companies listing as well as the changing economic dynamics in the US over the past century has slowly eroded the relevance of the index although it still tracks some of the world's biggest companies, a gauge that can be used in the assessment of the strength of global equities.

Listed below are the current constituents that feature in the Dow Jones Industrial Average with the longest listed company being General Electric in 1907 with previous stints before that and the latest inclusion of Apple in 2015.

Changes to the index don't take place regularly as modern indices do on a quarterly or biannual basis leaving it susceptible to becoming stagnant for a lengthy period of time.    

 

Let's have a look at the charts:

Quarterly

Given the index has a long spanning history its fitting to take the opportunity to observe previous rallies and selloffs with the chart shown following the period between 1988 till present.

Looking to the left hand side of the chart we see an impressive rally that began in the early 1990's that offered little resistance in the way of buyers with the outcome leading to a tremendous point accumulation that find a top at the height of the I.T Bubble of the late 1990's. 

This marks the transition from a trending market to an uncertain trading market that's encapsulated by two notable economic events that caught the market on the wrong footing, holding back the ease of flow with which the index sliced through old highs marching its way to the top.   

Immediately noticeable is the area of support just above 7 000 that provided the platform for fresh rallies to take off on a number of occasions. This support was built over a number of years reiterating the observation that the lack of change that happens in the index brings about stagnancy.     

From 2009 the market exhibited another flawless rally having being supported by the Federal Reserve who've used every monetary tool it has to resuscitated the US economy  with the result having gone down as one of the longest bull runs of all time. A rally with such power isn't created from inter yearly swing highs or lows but more so with an element of momentum to it. 

I've placed a 13 SMA and a MACD indicator onto the chart to find the levels of impulse the chart still possesses and whether there might be a chance that we see previous highs being taken out. The moving average still exhibits a degree of trendiness to its shape placing a positive edge in favour of the bulls here. However we do see the MACD histogram trending downwards. 

The price has tested the 13 SMA a number of times and has successfully managed to keep above that line but starting to wane off indicating potential to fall off. 

There's strong support at 16 000 that's been guarded well over the past two years which says it'll be a tough level to beat but in saying that we cannot forget to weigh up the grim prospects that lie ahead making me believe that this index may have reached a top. 

If the levels of 16 000 were to be taken out then we'd see a quick drop down to 14 000 from which we should find decent support in a previous resistance area. 

Weekly

A closer inspection of the sideway movement we saw on the quarterly shows us that the Dow Jones might well indeed be forming what looks to be a triple top formation. We've seen a large dome throughout 2015 that held support at the 16 000 level. We then saw a brief rally upwards only to be met with resistance at 18 000 before dropping off again.

Strange as it may seem, the all time highs have yet to be retested with the index but 18 000 looks to be a round number traders are using to stop and start rallies.

Currently the price sits close to the 18 000 level which does create some anticipation that a break could be imminent however we'd need to see enough momentum produced to push it over this barrier which seemingly doesn't show any evidence on the higher timeframes.

I've drawn a rectangular support box between the levels of 16 000 and 15 500. As mentioned above, upon closer inspection we can now see exactly where vulnerable points could lie with 15 500 the price to beat if we were to see the index come off here.

If that wasn't to happen its safe to assume that we could be headed into a consolidatory range so its important to note the price action that takes place at those levels for indications might very well show a potential buying area back to the top of the resistance of 18 000.
 

Nordic countries flirt with prospects of closer ties

Whilst the merry-go-round of debate on how European policymakers should deal with an impending crisis rages on, the first signs of spillover effects from a souring economy are beginning to show up quite prominently in countries who reside on the continent with strong trade links to the EU but haven't conceded the control of their local currency to the economic union.

Nations such as Norway, Denmark, Sweden and Iceland all adopt their own currencies to trade relations with Europe with exception of Finland who make use of the Euro. We've seen the economic dilemma these four countries have found themselves in when dealing with a highly appreciative currency that's leaving them in the cold when it comes to exports.

The progressive and stable political environment together with smaller populations when compared to their European peers have led many to consider these economies as safe havens in times of great panic although they've been amongst the most experimental in terms of negative interest rate policy which many thought would've chased off overvalued currencies.

However being the most productive and innovative countries in Europe and then weighing this up to the situation nations in the EU are facing its not hard to see why they've found their own currency problems. One could say that the truest form of socialism is exhibited in the implementations of such policies in these countries with little to no hiccups that show through due to the high level of education held by most of its citizens that forms an imperative degree of understanding to the necessity of the system.

But in a system that conforms to both sides of the economic spectrum, the strongest attribute of capitalism still shines through heavily when it comes to considering the best opportunity to place savings seeking out returns with the least amount of risk. In saying this, when summing up the analysis in the paragraphs above, its fair to say that the attraction to Nordic shores outstrips the benefits of keeping savings at bay when considering the risks that's gradually building up to a fresh crisis in the EU.

A billionaire tycoon thinks Denmark, Norway and Sweden should be a single country https://t.co/9CRvH0nwqO /Yes, but no NORW football style!

— Steen Jakobsen (@Steen_Jakobsen) May 20, 2016

Suggestions that a new trade bloc between three of the biggest Scandinavian economies should be formed to compete for better trade benefits with the EU warrants the idea flawed when combing through the negative effects ALL of these countries are suffering from Europe due to the perceived similarities amongst themselves. Adopting a common currency will simply draw speculators to a central currency rather than individually as is the case presently but it certainly won't change the perception to a lesser degree.

Nordic countries are victims of their own good doing and their close proximity to Europe is proving to be toxic to their own growth. We cannot expect them to thrive when witnessing the mess that contaminates the European economy.

A move such as the one proposed would only work if the over reliance on trade between themselves and Europe were diluted by the expansion of trade relations with the US which is seemingly becoming the trend taking shape as we see Washington extending its hand of good offering in exchange for support against the forces that threaten to destabilise the European region, the latest being Russia.

Although the issue of Russia is just one example of how Washington plans to keep Europe united, it certainly recognises the powerful influence these leaders have on their counterparts. It also opens up access for the US to incredible technological advancements in the products and services offered by Nordic countries that push the boundaries of competitiveness closer to optimal efficiency, a characteristic that once featured brightly in the European context but subsequently overtaken by the evils of socialism.

With the Euro weakening against most other currencies and the Dollar strengthening overall, now seems to be the best time to seal the deal. Nordic countries are taking full advantage of this with their latest summit hosted at the White House being a signal of intent between leaders. Whether they take further initiative will depend on how grave the consequences in the EU become in the years that lie ahead but with vulnerability showing more and more by the day it could be sooner than we think.

Obama: US, Nordic nations agree sanctions against #Russia should continuehttps://t.co/B7A0A7iHHn @Reuters #Ukraine pic.twitter.com/bJOydi0eK9

— Oleh Kuts (@OlehKuts) May 13, 2016

Major currency volatility is feeding from the sentiment of political uncertainty

Brexit might be fear-mongering the British public into the possibilities of a Eurozone without the participation of the UK, it's also stirring up a lot more than fierce debate over the strengths and weaknesses of remaining in the EU with market players beginning to look further than the June 23rd referendum date set down for voting to take place.

The pound has suffered dearly as a result of news flow pointing to the nation going either way when it comes to vote day, sowing the seeds of public discord amongst voters, not the ideal situation UK Prime Minister David Cameron would like to be in facing a possible party backlash should the vote favour heading to the exit door. Such a strong disagreement over the course of action the government should take doesn't make it easier for the Conservative Party after such vote has taken place with many expected to become disgruntled at the outcome whichever way it goes.

Added to this is the US presidential election set to take place in November of this year which itself is beginning to be drawn into the outlook of political uncertainty that has taken hold of global risk sentiment with some saying that it's creating a fluctuating pool of volatility in currency markets.

Part of the reason we seeing stark movements in currency valuations stems from the continuation by some in developed nation economies to extend its expansionary monetary programs through its central bankers causing a tsunami of liquidity that's finding it difficult to secure a home for investment and return.

Top currency traders warn White House race may echo Brexit chaos https://t.co/XNVLqqz5zP via @rachelevans_ny pic.twitter.com/p1hEiU0swB

— Bloomberg Markets (@markets) May 16, 2016

Both Europe and Japan have joined a number of crippled nation's suffering from appreciative valuations in their domestic currencies, dissuading foreign buyers from purchasing goods and services that contribute significantly to economic activity. The plan of action has been to venture interest rates into negative territory, a first for the world which hasn't been taken too kindly at its implementation.

Japan has been the most aggressive in stepping up its approach yet the desired effects that the BOJ would like to have seen come out of the situation has taken a turn for the worst with the Yen drastically strengthening as the placement of savings abroad no longer meet the prime objective of investment, which is to seek return. Japanese investors are starting to see their little returns made outside its border erode as its counterpart nations follow a similar monetary policy path, causing a mammoth inflow of Yen back into Japan.

The implication of such action has led to the Japanese Finance Ministry threatening intervention in the currency market if the appreciation doesn't stop. This obviously raised the hairs on the back of the necks of its fellow foreign finance ministers who feel that such a move would evoke the start of fresh currency wars.

Japan's Taro Aso repeats explicit threat of yen-selling intervention https://t.co/BDWPmwOSDv via @Reuters pic.twitter.com/ldhcTwILMy

— Dan Popescu (@PopescuCo) May 10, 2016

US Treasury Secretary Jack Lew reiterated that participating in overzealous currency devaluation would only help weaken the world economy instead of fulfilling each nation's self-serving currency goals. This was said in the light of Japan's finance minister Taro Aso edging closer to starting the process of currency intervention and ahead of the G7 summit taking place in Japan in just under two weeks.

It certainly sets the tone for what will be interesting discussions that will likely create a stalemate in terms of agreement around how world leaders will direct the economy in the right way. It's this uncertainty created by indecision that could heighten currency volatility further with the need to find common ground becoming the bone of contention.

Dollar struggles after U.S. Treasury secretary’s comments on currency wars https://t.co/HeKUPdMnFW

— MarketWatch (@MarketWatch) May 16, 2016

North Korea's missile test invoke leaders to find common ground

In an act of defiance against major world leaders, North Korean leader Kim Jong Un continued his rebellious tactics by firing yet another missiles after warnings by the US, Japan and South Korea that more would be done if provocations didn't stop. This comes at a time when leaders have gathered in Washington this week for a global nuclear security summit to discuss the latest developments surrounding tensions in the Korean peninsula.

Talks are proceeding slowly as China, a main trade partner and protector of North Korea, is yet to show it's hand over whether it will enforce the recent sanctions imposed on Kim's country by the UN following a nuclear test earlier this year. China has stated previously that it doesn't feel sanctions are sufficient to prevent further retaliation from their neighbours and a need to hold talks between 6 nations namely the US, Japan, China, South Korea, North Korea and Russia is needed to ensure denuclearisation happens.

However Russia's absence from the summit delved a bitter blow to leaders efforts to find a solution with many assuming the uncooperative nature of the West in scaling down its own imposed sanctions on the Kremlin following the annexation of Crimea could be the reason for the lack of participation.

Putin's role in finding a consensus is once again proving pivotal in moving forward highlighting the need for the West to start rethinking its approach to Russia especially with its involvement in Syria. Nothing seems to be clear at the moment but the attacks on Brussels last week are sure to nudge the level of priority upwards if resolution is wanting to be found. We should start to see Putin's presence increase in the coming weeks with anticipation over which of the two issues will be thrashed forward in terms of importance.

But probably the most notable talking point right now would be Kim Jong Un constant defiance but more so when their ally, China is in the presence of new and prominent trade partners that hold greater economic scope than North Korea. Kim's action is confrontational of Beijing, pressing them to show their support as they had done in the past.

North Korea appears to have fired missile into sea: South Korea military https://t.co/9T6cCAAuV2 pic.twitter.com/ijdSjCqJjV

— Reuters Top News (@Reuters) April 1, 2016

This hasn't been the case since China's Premier Xi Jinping made a state visit to North Korea last year pleading with the upstart leader to cool down his retaliatory stance that was causing concerns in the West. Xi feared that Kim was drawing too much attention to a vital part of the Asian region that could harm trilateral relations between themselves, Japan and South Korea.

China however has moved swiftly to relieve any uncertainty by openly talking with South Korea even though both nations have had strained relations in the past. Both nations leaders have laid down a commitment to work with one another that could all but spell doom for Kim Jong Un. The friendly relationship makes it more difficult for China to go back on its word and stamps a feel of genuine concern over the tense situation in the Korean Peninsula.

South Korea's President Park Geun-hye's non-aggressive open invitation for discussions between itself and North Korea further wounds the emotionally charged youthfulness of Kim Jong Un leading to many side with the voice of reason, winning more allies for South Korea.

Xi meets S. Korean President Park Geun-hye, exchanging views on bilateral ties #XiVisit https://t.co/kbl5XnZbP0 pic.twitter.com/pwIVlNDGH3

— China Xinhua News (@XHNews) April 1, 2016

Fed expected to keep rates on hold as tone closely watched

There's been a level of mutedness that has lay around global markets awaiting the Federal Reserve's decision on interest rates with expectations that hiking will be held off during this FOMC meeting after its European counterparts, the ECB spooked markets last week by painting a bleak economic outlook that could see deeper negative territory for interest rates in that region.

We heard yesterday that the Bank of Japan voted to keep measures in place fearing that any deviation might trigger a global selloff on the back of desperate actions needed to be taken by central bankers to save their respective economies from distress.

Today's Fed announcement doesn't possess speculation over whether there will be a rate increase or not but rather the pace being set. FOMC members expected to initiate four rate hikes during 2016 which many had thought to be an optimistic number that has subsequently proven true as world markets are being faced with tougher economic climates and little leeway allowing policymakers to maneuver.

I've said over the last few days that I expect the market to be tuned in to the tone Yellen strikes when it comes to the issue of negative interest rates. So far we've seen adverse reactions to what policymakers believed would spur markets on but failed to ignite the passion to drive optimism higher. These moves are leaving central bankers confused over whether to continue exploring the effects of negative interest policy or perhaps start seeking support from their fiscal partners in crime...governments.

Nonetheless we are moving closer to what I believe to be the edge of a cliff in terms of market valuations and I don't envision seeing much more support for the current bull run that recently celebrated its 7th year of existence. Unless the true facts are placed in front of the markets eyes instead of constantly being distracted away with artificial monetary stimulus that seemingly helps fade away the responsibilities by those elected to manage economic affairs in the interest of its people.

More hikes may be coming... your guide to Fed decision day https://t.co/LyydTaQ8Z0 pic.twitter.com/mQmUpst7co

— Bloomberg Business (@business) March 16, 2016

This chart of the Dollar Index provided by Jeroen Blokland puts things into context really well. Up until the Fed has implemented an interest rate hike of 25 basis points, nothing stood in the way of upside momentum in Dollar strength. Fast forward three months after the rate has had time to work itself through the system and the Dollar is trapped in a consolidatory price range that refuses to budge.

The irony of it all is it took one rate hike of 25 basis points to halt its march upwards, hardly the kind of penetrative action expected to place a drag on the economy. One would've expected a series of hikes before any kind of headwinds begin to be felt. This highlights the fragility of the US ecconomy is dealing with that just can't kickstart the growth engine so many have hoped would've eased up on the hard landing experienced by China.

#USD strength is now a far less(!) compelling reason for the #Fed to postpone rate hikes. $DXY pic.twitter.com/3fwYHnBn1K

— jeroen blokland (@jsblokland) March 16, 2016