The Fed is holding the usual monthly round of MBS purchase settlements August 12-21. This plus the regular weekly Treasury purchases has been sufficient to keep the markets bouncy for now. But that will change at the end of the month when more Treasury supply will settle and the markets get virtually no help from the Fed. A similar brief test of the sufficiency of QE to levitate prices was held at the end of July. The late August period sets up similarly. These weeks are a dry run for what the markets could look like after the Fed ends outright purchases of Treasuries and MBS probably either at the October FOMC meeting or in December.
Meanwhile, the Composite Liquidity Indicator (CLI) continues to rise at a slowing pace and, magically, the S&P 500 continues to bounce from the CLI’s lagging 39 week moving average.
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