If the FOMC’s objective at Wednesday’s meeting was to ensure that market’s didn’t further downgrade their expectations for Dec 2015 ‘lift-off’, then by all accounts it was ‘mission accomplished’. Yet when the comment that the risks around its economic outlook are ‘nearly balanced’ adds that the Fed is ‘monitoring global economic and financial developments’, you know we might only be one market hissy-fit away from the Fed coming into the December meeting knowing that lift-off is now ‘mission impossible’.
For anybody following my new Platinum Service it made 142 points yesterday and is now ahead by 1424 points for October. The previous four months saw gains of 2833, 2195, 1810 and 3045 points respectively.
Indeed, writing just ahead of the FOMC statement, the Financial Times’ ever-thoughtful James Mackintosh penned a piece titled ‘Puppet or Muppet?’ asking whether the Fed (with Janet Yellen as puppet master’) or the financial markets (the Muppets) were really in control of setting the price of money for the world’s most important reserve currency. As one economist that I follow said in the aftermath of his write up of the FOMC statement: “For financial markets the guessing game continues, but as long as the Fed can maintain the illusion of an imminent but never-delivered tightening of monetary policy, this is probably the best of all worlds for risk assets. The danger near-term is that by trying to bring a December tightening back in to play, the Fed risks the very same nervousness in asset markets which prompted it to pull the planned hike back in September. In this sense, the Fed is driven by – and not in control of – Global Financial Markets”.
The key difference from this October Fed Statement compared to September is the complete omission of the September sentence that “Recent global economic and financial developments may restrain economic activity somewhat and are likely to put further downward pressure on inflation in the near term.” So global concerns and the potential negative feedback loop to the US economy and inflation have been dialled down. At the same, concerns about the strength of the labour market have been somewhat dialled up, the Fed noting that “the pace of job gains slowed and the Unemployment Rate held steady” – a clear change from September’s “The labour market continued to improve, with solid job gains and declining Unemployment”. This makes the next two Employment Reports, ahead of the 17 December FOMC, obviously very important. The other notable sentence reads “In determining whether it will be appropriate to raise the target range at its next meeting…..” – phrasing clearly intended to pull markets further onto the scent of a December move than where they were going into the Fed. Job done.
The RBNZ, in just delivering its ‘no change’ decision, has maintained its explicit easing bias and notes that if the currency keeps moving higher it would require a lower OCR track. December therefore still looks a good bet for the Australian Central Bank to cut Interest Rates again.
Market reaction to what is appropriately view as somewhat more hawkish than expected Fed Statement, has been to see the US Dollar higher across the board, the only expectation being the CAD and which has held positive territory thanks to a sharp rebound in Oil prices (on an EIA reports suggesting inventory storage was down and fuel consumption up). AUD has doubled the loss recorded after yesterday’s soft CPI prints, now struggling to hold a 0.71 handle. US yields are about 8bps higher at 2 years and 5bp at 10 years, with market implied odds of a December Fed move rising to just shy of 50% from 16% before yesterday’s FOMC Statement. Risk assets are talking the Fed statement in their stride, as US indices closed with gains in excess of 1% after getting slammed earlier.
This morning on the economic front we have German Unemployment at 8.55 am. At 10.00 am we have Euro-Zone Business Climate Indicator. This is followed at 11.00 am by UK CBI Reported Sales. At 12.30 pm we have US GDP which will obviously be closely watched after the FOMC last Evening. At the same time we have the Weekly Jobless Claims. Finally we have German CPI and US Pending Home Sales at 1.00 pm and 2.00 pm respectively.
The Fed’s Lockhart will deliver opening remarks at a conference at 1.10 pm and it will very interesting to hear his take on the changed FOMC Statement.
December S&P 500
The S&P just missed my 2050 buy level before going on to have a near 30 Handle rally and I am still flat. Thankfully I had no sell level in the market yesterday especially with expectations of just 4% and 16% respectively expecting a Rate hike going into yesterday’s Meeting and the final Meeting of the year in December. I honestly believe that the Fed have no idea what they are doing and all has changed since Ben Bernanke left the Fed as Bernanke brought a lot of clarity to every meeting with his post FOMC Statement. Between now and December we have two very important Non-Farm Payrolls to get through before we have an idea of what the Fed will do next. Today I will raise my buy level in the S&P to 2070/2075 with a 2066 stop. I still do not want to be short the S&P especially as we have now closed over the key 200 Day Moving Average for the fourth consecutive trading session.
EUR/USD
The EUR/USD had another Key Day Reversal to the downside yesterday. Incredibly four of my markets that I cover had Key Downside Reversals, namely the Dollar Index, Gold and Silver to go along with the Euro. The Euro collapsed after the FOMC Statement stating that the Fed were ready to hike Interest Rates in December on the assumption that the Economy and more specifically Jobs are created. Yesterday’s sell-off saw the Euro hit my 1.0935 buy level. I am still long and I will use any rallies today to close this position despite the Euro trading at the top of its Bollinger Band and Williams Index. My stop will remain unchanged at 1.0895. I will also look to go short on any rally higher to 1.1050/1.1080 with a tight 1.1120 stop.
December Dollar Index
Thankfully I raised my T/P level on the Dollar to the 96.60/97.70 area which the Dollar managed to hit a low print of 96.50 ahead of the FOMC release and as a result I was flat into the announcement. I am still flat the Dollar as it approaches key resistance at the 98.00/98.30 level. Today I will raise my sell level slightly to 98.20/98.50 with a 98.85 stop.
December DAX
The DAX plan worked very well yesterday as the market spiked higher to my 10880 sell level just as the FOMC Statement was released before having a nice 100 point sell-off which enabled me to T/P on this position at my 10825 as outlined to my Platinum Members and I am now flat. The lower EURO is certainly helping the DAX outperform at this time. Today my only interest in selling the DAX is on a further rally higher in small size to 10995/11040 with an 11080 stop. I will also be a small buyer on nay dip lower to 10730/10780 with a 10680 stop.
December FTSE
The FTSE plan also worked well yesterday as the market traded higher to my 6415 sell level before having a nice sell-off post FOMC which enabled me to cover this position at my 6380 T/P level as outlined earlier to my Platinum Members and I am now flat. Today I will again look to go short the FTSE on any further rally to 6460/6490 with a 6515 stop. I still do not want to be long the FTSE at this time.
Dow Rolling Contract
The Dow spiked into the New York close with the market eventually hitting my 17760 sell level. I am still short and today I will lower my stop on this position to 17820. The Dow continues to underperform the other major US Indices which is understandable when you consider how strong the US Dollar is currently trading, as this will continue to effect the Earnings of the major Dow stocks.
December BUND
Unfortunately the BUND just missed my 158.90 sell level before following the US Treasury Market lower and I am still flat. Today I will lower my sell level slightly to 158.60/158.95 with a 159.25 stop.
Gold Rolling Contract
As mentioned above Gold had a huge Key Day Reversal to the downside with the market just managing to close over its key support at 1150. Given the extent of this Key Day Reversal and the fact that Gold hit my 1155 buy level I have now covered this position at 1157 and I am now flat. Amazingly some of the major Gold stocks were trading 8% up before the FOMC only to get slammed and close with an average 6/8% losses. No doubt the margin clerks will be busy in the Gold market later this morning. Today I am going to stay flat as I want to see if Gold has any follow through today to yesterday’s Key Reversal.
Silver Rolling Contract
Unfortunately I covered my long 15.88 position way too early at 16.00 shortly after the markets opened yesterday morning. I am still flat Silver and today I will use any sell-off to the 15.40/15.70 area to go long again with a 15.10 stop.
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