It looks as if the stock market is going to have a bad start to the day. The S&P futures are down 14 points and are trading 0.6% below fair value. The Nasdaq 100 futures, meanwhile, are down 51 points and are trading 0.9% below fair value.
Whatever optimism there might have been yesterday over Fed Chair Yellen's upbeat view of economic matters has apparently dissipated this morning. Buyers have backed off their efforts and they have another political headline lending a convenient excuse for doing so.
Specifically, The Washington Post is reporting that Special Counsel Mueller's investigation of Russia's interference in the U.S. election is broadening in scope to examine whether President Trump tried to obstruct justice.
From our vantage point, the Mueller headline isn't really surprising. Based on the bits of scintillating testimony heard recently before the Senate Intelligence Committee, one had a reasonable basis to think Mr. Mueller would at least go there to determine conclusively whether an obstruction of justice charge was warranted or not.
It's important to note, too, that the article says Mr. Mueller is examining the obstruction of justice issue, which is a lot different than saying he is bringing forth a charge of obstruction of justice.
The negative disposition of the stock market this morning, then, strikes us more as a reflection of the festering concern that the Fed might tighten too much, too soon, and choke off the economic recovery effort.
To that end, the Fed raised the target range for the fed funds rate, maintained its median projection that there will be another rate hike this year, and set forth a plan to start normalizing its balance sheet, which the Fed Chair said could start "relatively soon" if the economy evolves as anticipated.
That policy prescription was put forth nonetheless in the face of inflation readings that still remain below the Fed's longer-run target of 2.0%. To say the least, it has created a very interesting divergence with the Bank of England, which earlier this morning voted 5-3 to maintain the Bank Rate at 0.50% even though inflation in the UK (+2.9% year-over-year in May) is running well above the BOE's 2.0% target rate.
So, on the one hand, you have the most influential central bank raising rates with inflation below target, and on the other hand, you have a leading central bank reluctant to raise rates with inflation well above target. It's creating a messy mix of policy approaches that strikes us as laying the groundwork for a potentially messy period of volatility in the months ahead.
There was a mix of economic data released this morning that was generally better than expected.
- Initial claims for the week ending June 10 decreased by 8,000 to 237,000 (Briefing.com consensus 240,000). Continuing claims for the week ending June 3 increased by 6,000 to 1.935 million.
- The Philadelphia Fed Index decreased from 38.8 in May to 27.6 in June (Briefing.com consensus 26.0) with the New Orders Index little changed
- The general business conditions index for the Empire State Manufacturing Survey shot up to 19.8 in June (Briefing.com consensus 6.0) from -1.0 in May, hitting its highest level in two years thanks to a 23-point increase in the new orders index to 18.1
- Import prices declined 0.3% in May, but were unchanged excluding fuel. Export prices declined 0.7% and were down 0.6% excluding agricultural exports.
The futures market pared a small portion of its losses following the data, yet not enough to change the expectation for an opening decline. The Industrial Production and Capacity Utilization Report for May will be released at 9:15 a.m. ET and will be followed by the NAHB Housing Market Index for June at 10:00 a.m. ET.
The early weakness, however, isn't going to be reserved only for the stock market. At the moment, bond prices are down, gold prices ($1253.60, -$22.30, -1.8%) are down, and oil prices ($44.58, -$0.15, -0.3%) are down.
The U.S. Dollar Index (97.41, +0.47, +0.5%) is up and so is the CBOE Volatility Index (11.74, +1.10), which makes sense knowing there are a lot of moving and conflicting parts now involved with the stewardship of monetary policy among the world's leading central banks.