MARKETS AGAIN

The bragging rights we hoped to claim for calling right the outcome of the FOMC meeting Wednesday lasted no more than 20 minutes at best. The dollar spat out arguments of further weakness and Treasury note sellers were dissuaded from seeking higher yields imminently.

The market slowly took apart the changed words from the Federal Reserve and concluded that despite crumbs of comfort evident in the strengthening recovery, the fact that mortgage asset purchases were extended through the end of the first quarter of 2010 the Fed was couching the housing market into a more comfortable pose.

A couple of things happened. The immediately better take on the economy saw bond prices fall sending yields higher. The run on the dollar continued. However, the picture had more than reversed itself within the remainder of the trading session.

The nagging doubt created by the transparent view that the housing market needs more hand-holding after a comfortable run through the summer-months seemed to be the dampener that the equity market really didn't want to hear. The S&P 500 index reversed a one percent gain and traded it in for a 1 percent decline by the closing bell.

Earlier in the day commodity prices slipped too as they struggled to maintain the view that prices could continue to rise inexorably should the dollar's bad run suddenly stall. A rise in inventories of both crude oil and copper helped upset traders' fresh long positions in those markets. Crude oil prices slipped under $70 and retreated to close a $68.42 per barrel after the dollar index rebounded from a one-year low.

Meanwhile a rise in copper stocks monitored by the London Metals Exchange more than reversed Tuesday's gains for copper prices as traders worried about a potential phantom rally in light of what might actually be lower usage.

The question now is whether the market was just too far one way heading into the meeting or whether Wednesday's price action was a change of heart.  We don't see much need to change a dollar-bearish stance based upon what was said yet, but sometimes the market will push on that path of least resistance just for the sheer hell of it. Having said that, Thursday might just see a return to business as usual.

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