14:15 FOMC Interest Rate Statement (unanimous to hold at 0.25%)
All 103 analysts surveyed by Bloomberg expect rates to be kept on hold again
this month. Instead all eyes will be on will be on whether the Fed is going
to implement a new round of Quantitative Easing. The Indices and Commodities
have sold off sharply the past week leading into the NFP report, which was not
as bad as some predicted. This occurred alongside rumors of the Fed to implement
QE3 in today's meeting. This rumor was not enough to put a floor in the market
sell-offs, neither was intervention by the SNB or the BOJ, both who have seen
their currencies appreciate rapidly as participants seek safe assets. Also the
ECB stepped up their Bond buying program and expanded it to include Spanish and
Italian Bonds as the economies of these larger Eurozone nations come into focus.
This as well was not enough to stem the tide. The slightly better NFP number
did take a bit of pressure off the Fed to act, however S&P downgrade of US Debt
occurred at the close on Friday and has just fed the risk aversion we have seen.
So the Fed at least is expected to modify it's ‘extended period’ language. This
is an extension of the imagined time frame for the Fed maintaining its balance
sheet size, as this included the rolling over of the QE purchases they have made
in versions 1 & 2. Certainly the Fed will have to do something today, but this
is more likely than a full announcement of QE3 today. Naturally the Fed will
talk tough, that they stand ready to do whatever is necessary, etc. Having said
this however there are many who do indeed the Fed to announce QE3 today, with a
target inflation and expansion of the Fed Balance sheet beyond what it is already.
So if the Fed only announce an 'extension' of the current balance sheet, the
markets will probably feel let down and the 1100 lows in the S&P 500 future will
probably be retested and broken. If they announce QE3 today then 1200 is likely.
The markets could get very volitile, as the words used by Beranke might not be
clear initially, however once all has been said and the initial whipsaw will develop
into a clear path of momentum, there should be plenty of juice to ride it, so don't
rush into it. The market has sold off alot, and many are looking to buy the dip.
These great levels could disappear as quickly as they appearred but there is still
plenty of room to get in on a move either way.
If the Fed just 'extends' the timeframe of the current balance sheet,
Sell risk-appetite assets = commodity and commodity FX, indices, buy CHF, JPY, USD
If the Fed announces 'expansion' of the balance sheet,
Buy risk-appetite assets = commodities and commodity FX, indices, buy AUD, NZD, CAD
* Gold and to a lesser degree silver should do well in risk aversion or USD weakening due
to further QE, but the initial response could be whippy.
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