DailyFX.com -
Talking Points:
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The extended holiday weekend conditions for much of Europe and Asia curbed the market's ability to force breakouts
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Extreme quiet persists across the market's risk-leaning assets; but the Dollar's, S&P 500's and VIX's quiet stands out
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With little reaction to a US inflation reading and hope for government spending, anticipation now turns to the FOMC
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Despite the exceptionally quiet conditions in the financial system, the markets made little effort Monday to metabolize noteworthy event risk out of the US into serious traction on price. That isn't particularly surprising given the liquidity drain with Chinese, European and UK markets offline for holidays. The true test for the speculative rank's complacency is ahead when the pool fills and investors review their exposure against the financial landscape. For those keeping tabs on two of the most extraordinary consolidation efforts from the S&P 500 and Dollar, it is logical to question whether there will be a delayed response to Monday's data and headlines. On the docket, the slowing of the manufacturing sector (ISM) and stalled consumer spending doesn't carry as direct a route to active trends as the PCE deflator update. The Fed's favored inflation measure slowed more than expected through March to a pace below the central bank's target. If that alters the group's timetable for the fourth hike in its series - much less the progress of winding down QE - it didn't show in the Dollar or Fed Funds futures.
A more intangible development that speaks more to risk taking in US and global assets were reports that Congress had closed in on an approximately $1 trillion financing agreement that was reportedly favored by the President. Yet, what relief that may have offered in more active conditions - remember the 'risk on' response after the outcome of the first round French election - it was lost on the market Monday. And so, the ICE Dollar Index (DXY) holds a tight consolidation pattern just below a seemingly critical technical pattern break while the S&P 500 tracks a disconcertingly quiet range just off of record highs. Meanwhile, the VIX volatility index managed to notch an already quiet reading to yet a lower level. The 10.1 reading is the lowest close since February 2007. The temptation is to call this extreme the limit to the market's complacency and prepare for a systemic shift in confidence and consolidation. However, extremes can always stretch a little further or a little longer than market participants may have thought possible.