Bulls Pull In Their Horns Ahead of Jackson Hole

The market is lower in early trading, following weakness in overseas markets overnight.  Asian markets were lower across the board.  A Chinese State economist said inflation will rise above 3.0% in August, which might explain why the PBOC has been reluctant to lower interest rates.

Europe's markets are also lower despite Germany posting an in-line unemployment rate of 6.8%.  Bond yields in both Italy and Spain are slightly higher today after Italy auctioned off 5- and 10-yr debt.  Angela Merkel is visiting China, where the Prime Minister said his country remains committed to investing in Europe.  But I haven't seen many initiatives aimed at helping Europe at large, rather the moves I've seen are strategic investments by China to strengthen their commodity needs.

In the US, retailers released same-store sales for the month and many have been better than expected.  But retails stocks are flattish overall, being held back by the bearish tone of trading today.

The dollar index is rising again weighing on most commodities.  Oil prices have pulled back to $94.00, and gold prices have eased to $1654.

The 10-year yield is hovering above its 50-day support near 1.62%.  And the VIX has spiked 5% this morning, breaking above its 50-day average to 18.0.

Trading comment: I think some traders were hoping the market would rally more going into the Jackson Hole event, looking for a buy-the-rumor, sell-the-news type pattern.  But the market has been flat the last few days so maybe some of these folks are taking some chips off the table today ahead of the big event tomorrow.  I am on record as saying I do not expect any explicit new QE initiatives, and that could leave the market ripe for disappointment.  To the extent that the market pulls back today, that could lower the odds of a larger selloff tomorrow.  I also expect that volume will be relatively light tomorrow ahead of the Labor Day weekend, which could add to the element of volatility.  But next week things heat up again as traders return from their vacations and the ECB meets next week hopefully with some further policy announcements.