Good morning, well here we are – Fed day! Little else will matter today I expect as it will be all eyes on the US and traders on tenterhooks, poised to launch a buying spree if the Fed cuts its unemployment target below 6.5%. $10bn of QE cuts are priced in now. The issue is whether the Fed lowers its unemployment target or “threshold”. This would mean loose money for longer, shaping the trajectory of interests rates far into the future. “The real drama is if the Fed does more than taper,” said HSBC’s Daragh Maher. The Fed has a two-phase trigger. It aims to wind down bond purchases to zero as the headline jobless rate nears 7pc, and then start to raise rates at 6.5pc. The problem is that unemployment has been dropping faster than expected. It is already 7.3pc and could hit 7pc soon. This would be fine if the economy was roaring back and creating jobs, but it is shedding jobs at a disturbing pace.
Yesterday’s long worked out for a few points from the 6591 area, reaching 6610 before more downside into the close and the other support level at 6572 pretty much holding. Overnight, as you would expect has been pretty flat with prices now just below 6600. We are hovering at the bottom of the 10 day channel on the Bianca and Raff charts but really today is all about the Fed. Probably a good day to just stand aside really unless you fancy a punt on the news. I expect today will be pretty flat till the news at 6pm this evening (UK time).
Asia Overnight from Bloomberg
Asian stocks rose, with the regional benchmark index trading near a four-month high, before the Federal Reserve decides later today whether to slow its $85 billion of monthly asset purchases.
The MSCI Asia Pacific Index gained 0.4 percent to 138.65 as of 12:37 p.m. in Hong Kong as eight of the 10 industry groups on the gauge advanced. Futures on the Standard & Poor’s 500 Index rose 0.1 percent.
“Any sort of announcement, whether it’s zero tapering or $5 billion or $10 billion is going to have an effect on the market no matter what,” Nick Maroutsos, Sydney-based managing director and co-founder of Kapstream Capital, which oversees about $5 billion, said by telephone. “What we do know is that it’s going to be a very, very gradual withdrawal of stimulus. We are bullish on equities.”
Fed Meeting
The Federal Open Market Committee has been meeting for two days to consider whether it will taper its $85 billion a month in bond buying. Analysts are divided on the amount by which the Fed will scale back its monthly asset purchases. Among 64 economists surveyed by Bloomberg News, 33 predict it will reduce its buying of Treasuries by $5 billion or less, with 31 forecasting a cut of $10 billion or more.
“It’s so up in the air right now that no one really knows what to expect,” said Maroutsos. “To say things are largely priced into the market is a bit naive. Now that we’re getting data that’s relatively positive, with the jobs market on the right footing and the housing market doing better, this should all be stock-market positive.”
Outlook
Today’s pivot is 6587 which hasn’t really been broken overnight, however we have a rising channel still on the 30 minute chart, with support around the 6572 area. As mentioned its really all eye on the Fed and I expect the vast majority will be keeping their powder dry today till we have a definite steer on the future plans. I am pretty much expecting a slow drift up going into the news and I think the main trade will be as per the blue arrows, with the bottom of that 30 minute channel holding (and its also the bottom of the 10 day Raff and Bianca ones there too). We also have the bottom of the 20 day Bianca at 6548, which is why I am having a slightly more bullish bias today. If prices can break the 6615 level then that will be good as it opens up 6659 and possibly even 6672. However, if yesterday low around the 6560 area breaks then we will most likely drop as far as 6517. Tricky really and its going to be interesting to see what the Fed do, as whilst data hasn’t been too bad, its hardly stellar. I mentioned a few months ago that I don’t think they will taper at all just yet – if they don’t taper then we will most likely get a large rise and break through all those resistance levels, however I am usually wrong when guessing likely news outcomes!