What Fed Really Meant
You will read a great deal about the Fed last night and the immediate reaction was that the Fed was less hawkish.
The USD short interest rate futures curve is repricing the odds of hikes next year and now it looks as though there will only be one hike as opposed to the two hikes that were priced in back in September and in late October.
The U.S. Stock markets reacted positively to Chairman Powell’s comments regarding where rates are currently in relation to neutral.
In addition gold rose by 10 USD and the dollar was weaker across almost all currencies.
Emerging market currencies were stronger against the USD.
Investment grade bonds, high yield bonds and the global stock markets all traded higher in a sigh of relief that the Fed is reconsidering its aggressive path regarding hikes.
Oil slid lower, as inventories climbed higher.
So all is good correct….. We think the market is ahead of itself today.
Supporting the markets we have
Lower energy prices are helpful in terms of calming inflation fears.
Weaker housing market is sending the signal that the rate hikes by the Fed are having an effect.
We see indicators in the U.S. showing signs that the economy is slowing
Hiring activity appears to be slowing.
It appears that credit creation is slowing.
China, Europe and many EM countries are experiencing slower growth.
We think that labor market is still tight.
Manufacturers are seeing input costs continue to rise.
There are continued bottlenecks that are affecting suppliers.
In many places in the U.S., available jobs are taking record amounts of time to fill.
Will the Fed want to risk inflation expectations rising due to softer policy?
We look for a December hike, which is priced in.
Should we get a positive result between China and the U.S., in a perverse way that may also force the Fed to become more aggressive.
Equities: we were looking for a bounce in the global stock markets on Monday and we are now content and would take profit as we await developments over the weekend.
Oil: is a trading market now, we don’t see a collapse from here and prefer to watch the price action form the sideline.
USD: recommendation below
Gold: back to the middle of the range as the 1210 level held. Direction is driven by the USD.
S&P CFD has had a nice bounce this week and is in middle of range. Suggest waiting for result of G20 before taking trading position
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