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7/24/2017

A combination of muted monetary policy and bumpy politics sent the greenback lower and is keeping a bid to stocks (for now).

Since that last Fed hike some weeks ago, monetary officials seemed to have backed off a continued rate hike stance in the future, as they cited muted inflation and emerging mixed signals.  This mirrors the sentiment we expressed in our last market update, as we called for one more hike and then a “wait and see” approach to future action.  This turned out to be fortunate for stocks, given a continued near zero interest rate scenario, with the longer end of the treasury curve showing no significant moves in 2017. Once again, the mal-investment pulse of players looking to gain yield wherever they can is the name of the game, thus keeping flows into stocks, particularly the speculative savvy NASDAQ.  The broken record keeps playing.

However, with muted monetary policy on the horizon and with Eurozone showing some economic spark, the US$ has gotten pummeled.  Add to that a continued bumpy road on the political scene as mixed convictions on the part of the GOP has kept policy changes slow going.  EURO support comes in at 1.1550 and downside for the buck could be significant.  For now this type of move on the currency side shouldn’t affect other markets.

We continue to hold to the idea that the US economy is not in great shape and continues to have significant economic and financial imbalances underpinning it….the flat shape of the Treasury curve illustrates this problem.  We see the probability of another rate hike before October as very low.

Most importantly…enjoy the rest of the summer

 

Stephan Kudyba (MBA, PhD)                      THE MARKET DOCTOR

 

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