Market Update

Looking at the events of the last 24 hours or less actually, it's very difficult to look at the minutes release yesterday which defined the word "Patience" as "flexibility". It's hard to believe the F_E_D can't find the correct term to more accurately articulate the ability to either act sooner or act later, based on incoming data. PAtience is not the right word according to what the F_O_M_C claims it represents. Patience by definition is, "the capacity to accept or tolerate delay", this hardly meets the definition the F_E_D gave of a sort of flexibility which could go one way or the other and the other being diametrically opposed to the very meaning of patience which raises the more articulate use of a word to describe what the F_E_D's policy statement was actually trying to achieve and that word is "Subterfuge" which means, "deceit used in order to achieve one's goal.".

The F_O_M_C knew the meeting minutes would not be out until 3 weeks after the policy statement, thus a whole 3 weeks to allow a misunderstanding of a single word, which was really nothing more than shifting the public's attention away from the "considerable time" phrase and giving it something new to obsess over that seemed to hold one meaning, but in F_E_D speak, actually holds an entirely different meaning.

The minutes also made clear the F_O_M_C was ready to hike rates at the current inflation of 1.4%, which is below the target range of 2%, so long as they felt reasonably certain that inflation would move toward that range. Oil's falling prices are considered by the F_E_D to be transient and even a good thing and Global Risks that may stay their hand are offset by US data like the 5% GDP print. Yellen said in her press conference words to the effect that a interest rate hike probably wouldn't come until a couple of meetings, when pressed on the definition of a couple she answered "TWO" which means the April meeting, however added the caveat that everything is data dependent and "could" happen sooner or, almost as a side note, "later".

Not being a F_E_D aficionado, just using common sense and looking through the various layers of Bull and not as in bullish, I'd say the F_E_D is pretty well set on raising rates much sooner than later and have given themselves plenty of phrases, even if they have to bend the actual definition, that allow them plenty of plausible deniability when making the market think one thing and then doing the opposite, there's enough confusion in there that anything can be explained or denied.

I think what is most interesting is Charles Evans' comments the day the minutes were released and failed to really do anything to the market, yet the positions were already in place for a bounce. Evans' wasn't speaking off the cuff, this was a planned speech, the description of which was, 

"Description
Chicago Reserve Bank President Charles Evans discussion on the impact of monetay policy in an uncertain economy, in Chicago."

While I didn't hear the entire context,I'm not so sure how much it matters as Evans is a F_O_M_C voting member this year, but considered the most dovish of all, his views are hardly the mainstream of the F_O_M_C or what they've been putting out even in their most dovish stances. I'm sure he could write a great dissent, but I don't think he'll stop the course the F_E_D is on.

What's perhaps more interesting is the unofficial mouthpiece of the F_E_D, Jon Hilsenrath of the WSJ with a piece this morning that is being called "Damage Control" over Evans' comments last night and some are saying he may have leaked the F_E_D's surprise plans for an earlier than expected rate hike. It's clear the F_E_D has set the stage to easily get away with it without being called misleading.

The F_O_M_C meets in on Jan. 27 and 28th. 

There was clearly a set up for a bounce in place this week and as early as late last week, I can't divine what Evans meant or what his intentions were, I do think the Hilsenrath reply this morning in the WSJ was oddly timed and not coincidental and not even really on topic re: Evans other than to counter what he said. Hilsenrath was going back to speeches made in December by Bill Dudley which suggested an earlier lift off for rate hikes, more or less based on events from 2000 in which the F_E_D had the wrong reaction which may have led to the housing boom and eventual bust, an odd theme after the minutes and Evans 12 hours earlier.

Whatever all of this means and where it's going, I don't think we are done with out bounce, but I do see more of the things I initially mentioned earlier today that I thought might be going on, specifically the levers for ramping the market can quietly be slid out of place, taking the funding off the table and out of risk's way and let the Evans comments act as the lever.

While still early, these indications continue to move in the direction proposed earlier...

TICK's strange action just got stranger with a -1100 print.

 The VIX Term Structure is nowhere near a buy signal, although the last one should still be in effect. However the SPX:RUT Ratio is not exactly confirming. Not a smoking gun, but a change in character.

5 year yields

10 year

30 year- none of which are supportive or helpful to the market near term, you might even say they are eroding.

Of course the market is off on an Evans bender having no correlation with the USD/JPY or any other carry pair.

 VIX futures are seeing intraday accumulation since the cash open.

 PIMCO's leading HY asset is moving lower for the first time in over a week.

And as expected, the leading lever (other than USd/JPY), HYG is seeing continued and very deep intraday distribution. The levers are being pulled back, it shouldn't be long before the market follows.

I'll have some charts of the averages as I just saw TICK put in another nasty print.