Morning Report: The markets and the Fed are on different pages

Vital Statistics:

	Last	Change	Percent
S&P Futures	1957.3	14.2	0.73%
Eurostoxx Index	3192.0	103.8	3.36%
Oil (WTI)	46.1	0.6	1.23%
LIBOR	0.327	0.003	0.96%
US Dollar Index (DXY)	95.93	0.097	0.10%
10 Year Govt Bond Yield	2.01%	0.02%
Current Coupon Ginnie Mae TBA	104.9	-0.1
Current Coupon Fannie Mae TBA	104.5	0.0
BankRate 30 Year Fixed Rate Mortgage	3.88

Markets are higher this morning on overseas strength. Bonds and MBS are down.

The Labor Market Conditions Index fell from a downward-revised 1.2 to zero. This has been the average since 2000. 

The Markit US Composite PMI came in at 55, while the services PMI came in at 55.1. The ISM Non-Manufacturing Composite fell from 59 to 56.9. 

Aftermath of the weak jobs report on Friday: Fed fund futures assign a 10% probability of an Oct hike, 30% probability of a December hike and 50% probability of a March hike. The markets are increasingly out of sync with what the Fed members are actually saying in the press. Note we get the FOMC minutes this Thursday. That will be the highlight of the week. 

The Bernank weighs in on raising rates. His Rx: don't. Separately, DoubleLine's Jeffrey Gundlach thinks we have further downside in risk assets like junk bonds, US equities and emerging markets stocks and bonds. His point: people are holding and hoping these assets rebound. That isn't the psychology of a bottoming process. That happens when people throw in the towel and sell. 

It is looking like the Trans-Pacific Partnership free trade deal is pretty much done. It still has to get through Congress, although he did get fast-track approval. I suspect it won't move the needle that much for the US economically. It is mainly about intellectual property protection for US firms. 

Sometimes bad ideas get implemented, fail, become forgotten, and then come back, like Freddy Kreuger. One such idea is the financial transactions tax, also known as the Robin Hood tax. It is back in vogue in Europe, and Bernie Sander wants a 50 basis point tax on all stock trades, a 11 basis points on bonds and 5 on derivatives will be able to fund a slew of new government benefits. Don't believe it. While leftist politicians love to promote ideas like this as new, they aren't. They have been tried and discarded. Sweden implemented on in the 1980s, only to see most stock trading in Swedish stocks flee to London. The UK in fact did implement one for stock trades, and all it did was drive institutional investors to use swaps to sidestep it and retail investors to go to betting parlors like City Index. They will sell it as raising a lot of revenue - it won't simply because it will kill high frequency trading, and volume will dry up. They will sell it as reducing volatility - some (not all, but some) of HFT is actually market-making which is stabilizing. We don't really have market-makers or specialists on the floor of the New York Stock Exchange like we used to. You could make the argument that it will increase, not decrease volatility. Anyway, #FeelTheBern is big on this idea - he should take a look at how it has (not) worked in the past.