Fed leaves rates unchanged. Will the dollar fall?

Abraham George Macro View

The Fed’s unanimous decision to leave rates unchanged was widely expected by the markets. The markets started edging higher as soon as Fed Chairman Powell started speaking in his press conference. But when he emphasized the word “not even thinking about thinking about thinking about raising rates.” (Mr. Powell said ‘thinking’ thrice) The markets loved him all the more.

The markets were least concerned about the House Judiciary Committee’s antitrust hearing with the big tech companies. The four big names namely Amazon, Apple, Alphabet and Facebook were summoned before the subcommittee through a conference call to be grilled.

In the end nothing happened. The big techs were smart to change the narrative to how satisfied its customers are and how many jobs they are creating for the US economy.

Today about 272 companies will be reporting their earnings report, but the market focus will be mostly on Amazon, Apple, and Alphabet (Google).

The most surprising news yesterday was the US government’s efforts to revive the once blue-chip American company Eastman Kodak. This company was almost dead and now it has been resurrected with the governments new initiative in bringing the supply chain home. It is like the Hulk coming back to life with more power and muscles.

The company all of a sudden has switched from making films (as the digital revolution killed that business) to making pharmaceutical ingredients with some massive government support. The next support could be for GE. We don’t know as yet.

Kodak at one point was up 500% while trading was halted more than 10 times. All because President Trump announced the firm which was once renowned for film photography will get a $ 765 million federal loan to make generic drug ingredients. Trust they will maintain the same reputation they maintained in film making for drug making.

Any way it was a field day for all the ‘Robinhoodies’. Before it was Tesla now, they have Kodak. Who will dare short it? On a serious note, this company could be something like a 4 to 6 bio market cap in a few years. We will see.

Equities

The recent rally to 3280 on July 23 in the S&P 500 could hold the top for the markets and be a vantage point. The highs since have been lower in various degrees. Still we cannot exclude another high that can go to fill the gap that exists up to 3338 from the close of Feb 21 to the open of Feb 24. Nonetheless it looks increasingly likely that a turn is around the corner.

Bonds

Still no changes in bond outlook from previous reports.

Euro

We heard an eminent economist like Stephen Roach say a few months back that the dollar could fall by 35%, a few days back we had Ray Dalio questioning about the soundness of the dollar and now we have a major investment bank like Goldman Sachs raising doubts about the reserve currency status of the dollar. No doubt their explanations are all valid.

So, is the dollar likely to fall out of bed now? We really don’t know. But we think Euro could run into some major resistance soon. We believe that level is within the 1.1820 to 1.1880 area. The daily sentiment index is at its highest level since the last time Euro topped out at 1.2555 on Feb 16, 2018.

Gold

There was extreme volatility in gold yesterday. Prices spiked to 1981 which was not confirmed by sliver. It is not usual that gold and dollar move in opposite direction. Daily sentiment index is at an extreme since last two days. So, we will exercise extreme caution on any long gold positions. We should come out with a special report on gold over the weekend.

Abraham George is a seasoned investment manager with more than 40 years of experience in trading & investment and portfolio management spanning diverse environments like banks (HSBC, ADCB), sovereign wealth fund (ADIA), a royal family office and a hedge fund.