“Stimulus-less Fed Minutes Drops Stocks Again”

Investors lined up hoping for stimulus news in the Fed minutes, only to be emotionally (even physically) disappointed

Dow 12,605 (-0.38%) S&P 1,341 (-0.01%)

Make that 5-straight negative trading sessions for stocks. The major market mover today was the release of the Federal Reserve‘s meeting notes and the investor reaction was an overwhelming combined The lack of stimulus discussion in the central bank’s minutes took center stage, sending the Dow down nearly 120 points at one point midday. But a well-timed Spanish political speech kept the sell-off limited and the blue chip index finished with a 49 point loss. Domestic econ news was mixed, as US foreign trade deficit was smaller for the 2^nd straight month (like always, imports > exports in the US) while Midwest scorching weather is killing corn production and shooting up prices.

Federal Reserve Bank minutes show that additional monetary stimulus unlikely

The Federal Reserve released minutes from its last meeting and there was little mention of additional stimulus measures to spur the economy that investors were hoping for. The play-by-play transcript of the central bank’s policy discussions is released a month after the most recent meeting and impacts markets because investors search the tea leaves for clues on the Fed’s plans. Although this meeting took place before the Labor Department’s disappointing June employment report, the unemployment rate has remained at a stubbornly high 8.2% and investor expectations of meaningful action by the Fed, like more quantitative easing (QE3), any time soon are dimming. The Fed’s counterparts also haven’t received the stimulus memo – Europe, UK and China’s central banks have notably recognized the slowing global economy needs help, but instead of taking the drastic bazooka-level stimulus measures investors want, they have only fired squirt guns. Central bank news hurts stocks hyper-sensitive to global econ growth, sending Boeing (BA), John Deere (DE) and Caterpillar (CAT) down today.

Spanish PM announces big spending cuts & tax hikes, pleads for solidarity

After the EU delayed deadlines for the Spanish government to reduce its budget deficit yesterday, investors were happy to see Prime Minister Mariono Rajoy actually accelerate debt reduction today. In an impassioned speech before Parliament, Rajoy announced major spending cuts & tax increases: cut public employee wages 7% and increase a value added tax to 21%. This is hardly welcome news to a poor/largely unemployed population, so Rajoy emphasized that by taking bold action now, maybe Spain can avoid the recession/social turmoil that has Greeks stocking up on ammunition and fallout shelters. While these austerity measures are another frat-style paddling to the Spanish people (unemployment’s at 25%), international investors and the EU were impressed by the fiscally responsible move. Critics though wonder if they will do more harm than good by inadvertently aggravating Spain’s economic recession (the fear is if GDP contracts, then the increased tax rate could be offset by the reduction of income to tax people on). Nonetheless this valiant effort boosted investor confidence and lowered Spanish borrowing rates.

USDA drops corn output forecasts on major Midwest drought

For our passionate Husker reader base out in Nebraska, we know from your sweat-doused fanmail how hot it’s been this summer. As you read this in your fatigued wifebeaters mid heat wave, just know there is another victim – corn. Corn is a major traded commodity and a critical measure for widespread food production. The US Department of Agriculture drastically cut its forecast today that corn production would set a record in 2012 because of the droughts in the Midwest burning up land. The monthly supply-and-demand report dropped the expected corn-yield from 166 bushels (that’s a lot) to 146 and the USDA raised the range of average farm price forecasts up by over a dollar per bushel because of increased demand on diminishing supply. With wild-fire level droughts everywhere, you’ll have to wait till August to get a better sense of what the USDA thinks the actual crop size for all of 2012 will be.

Tomorrow:

• All eyes turn to the Far East: China reports GDP numbers
• Weekly jobless claims and the June Federal Budget here Stateside
• Corporate earnings news lays low until Friday…

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