2016/07/25 Commentary: Here Comes the Fed
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COMMENTARY (Non-Video): Monday, July 25, 2016
Here Comes the Fed
As noted in Friday morning’s Commentary: Drahi Disappointment, the markets were acting like the current trends could be extended under the influence of some bit of further accommodation from the ECB at Thursday’s rate decision meeting. As noted in Wednesday evening’s Commentary: Shedding Trend Trepidation, “While there is no expectation [the ECB] will move base rate into negative territory, there will be suggestions that further QE is possible after the recent allowance of corporate debt as a possible ECB purchase target.”
It was therefore quite a disappointment indeed that the ECB chose to stand pat on its current €80 billion per month asset purchase program. The September S&P 500 future failed one last test of its previous 2,168.00 all-time high the previous week prior to slipping back down into last week’s 2,155-60 weekly Oscillator resistance. And then a funny thing happened. In spite of the further assistance from the ECB (and the BoE the week before), the equities managed to rally right back up to the previous high area. It would seem that the serial improved US data has some influence in spite of the still spotty data elsewhere.
So in spite of the warning’s on global growth from various NGO’s and weak indications (especially sentiment) out of the UK and Europe in the wake of UK’s Brexit vote, the equities remain firm. The influence of that stronger US data is also seen in sustained strength of the US dollar against all of the other currencies and the US T-note remaining the weak sister in a still strong overall asset class.
This brings us to this last week of the month typical intensifying economic release flow after a light US reporting day today (only Dallas Fed Manufacturing Activity Index.) And we get the next FOMC rate decision and Statement on Wednesday afternoon. Even allowing the recent improvement in the US data, it still seems unlikely the Fed is going to hike rates on Wednesday. That is in part due to it being a statement only meeting. Yet that would not stop them if the situation were really compelling. However, with both the BoE and ECB having been less aggressive in their accommodation than some expected in the wake of the UK Brexit vote, the Fed could look overly aggressive with any hike on Wednesday.
However, given the frustrated rate increase appetite of the Fed Hawks, more hawkish statement language will also be no surprise. And that is something the equities will need to deal with, along with the govvies and US dollar.
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