Tuesday's Close

E-mini S&P 500 Futures (September): Settled at 4394.50, down 49.00

E-mini Nasdaq-100 Futures (September): Settled at 14,849.25, down 148.25

The buyer exhaustion we spoke of was real, and after sharp rebounds on Monday and Tuesday, there was simply no ammunition left. Some may look to yesterday’s Fed Minutes as the catalyst, and it certainly played a role. 

Although we didn’t learn anything new, it was an ever-present reminder that Fed Chair Jerome Powell will lose several dovish voting members this year and gain others who are more hawkish next. Furthermore, this meeting was the week before July’s strong jobs report and, therefore, the Minutes can now be interpreted more hawkishly than the meeting itself. All things considered, there are some fears from committee members that inflation isn’t transitory. Whether it remains persistent in 2022 doesn’t matter right now. 

Also, those most hawkish firmly believe current levels of inflation coupled with recent job gains clearly support a taper announcement. As we’ve recently begun noting, it’s now less about a taper announcement, because it’s certainly coming, and more about the pace the Fed tapers its $120 billion in monthly asset purchases. At the end of the day, the Fed will remain accommodative, adding to its balance sheet through the end of a taper process while reinvesting its current holdings. However, a more hawkish voting committee would seemingly speed that process up.

The U.S. Dollar Index did spike late yesterday and is trading out of its near-term range. However, it still must extend for a weekly close above 93.50 in order to break out. More than anything, market players who were keeping the Dollar rangebound may have thrown in the towel. Expectations are mounting for a firmer signal at next week’s Jackson Hole.

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