Tag Archives for " federal reserve "
5 Keys to Understanding Tomorrow’s Big Fed Day
1) The Hawk Setup Traders are now pricing in a 22% probability of a rate hike tomorrow and a 58% probability for December. For the past month-and-a-half, Fed heads including FOMC Chair Yellen have been spinning a hawkish tale, seemingly to get markets prepared for a rate hike. Now, I have to wonder: if the Fed’s selling rate hikes so hard, why isn’t the market really buying in yet? 2) Is It the Economy? Clearly, US economic data strength has been deteriorating since late July, as you can see in this chart of the Citi US Economic Surprise Index: We’ve seen misses on GDP, NFP, ISM Services, Personal Income, PCE Deflator, Retail Sales, PPI, etc., though last week’s CPI beat was a nice win. The Fed always makes clear that it doesn’t obsess over any one data point, but I wonder if the trend is weak enough to warrant attention. The alternate explanation for people not really buying into rate hikes just yet is probably because of the Fed’s history of misdirection. No one wants to get caught playing the sucker. 3) How Are Traders Feeling? Sentiment is mixed headed into tomorrow. The ISE Sentiment Index is at just 55 this morning — indicating heavy put options demand. CBOE equity put-call is at 1.25 — again, indicating heavy put demand. So it does appear that equity traders are hedging and/or betting on more downside. This is GREAT news for the bulls — the worst setup would be heavy call options demand ahead of an event with so many moving parts. Remember… 4) Rate Hikes Are Not the Sole Point The market reaction won’t solely be determined by the rate decision. What’s really important is signaling of how many rate hikes there will be, and over what time frame. Odds are the Fed will be somewhat vague, but I’m sure there will be some juicy nuggets scattered about — most likely in the form of language removals/additions. But the most important thing is this… 5) Don’t Make a Rush to Judgement Markets do bizarre things on Fed days. And the media is always in a rush to explain it all, which makes no sense because between 2:00 and 4:00 p.m. ET, you can see 3+ different major moves, at least 1 of them based on algos trading within milliseconds of the statement hitting the tape. The market will tell us what matters… but not until 3:30 p.m. at least.
Continue Reading -->Why the Fed Is a Total Mystery Right Now
As US economic data has generally slumped as of late, traders have pulled back on their rate hike expectations relative to last week. You can see the trend in this chart plotting implied Fed rate hike odds for each of the next 5 FOMC rate decisions: Traders are now pricing in a 48.8% chance of a December rate hike, down from about 60% last week. That means we’re right back to being split down the middle. Some traders were also thinking the September 21 meeting was “live.” Now it looks like that’s off the table, as a mere 20% probability is being priced in. Unfortunately, we may not get much clarity soon. This week’s US economic calendar is pretty much empty. The next big releases are the August retail sales report next Thursday 9/15 (plus industrial production that day), and August CPI on Friday 9/16. And there isn’t much else between those reports and the next FOMC rate decision on September 21. So what else do we have to look at? Well, we have Fed officials Rosengren, Kaplan, Lockhart, and Kashkari out chattering over the next week. But only Rosengren is a current voting member of the FOMC. And besides, it’s getting harder and harder to reconcile all the hawkish chatter with the concurrent decline in US economic data. Check out this chart of the Citi US Economic Surprise Index, which measures economic data relative to expectations. The trend turned down hard with the weak Q2 GDP report on July 29, and it’s looking pretty sorry.
Continue Reading -->Rob Smith’s Daily Recap Video: Another Awesome Fed Day
In today’s Daily Recap video, T3’s Rob Smith breaks down the action on a very exciting Fed day.
Continue Reading -->T3’s Take 3: Apple Hulk-Smashes the Bears
Want to start trading like a pro? Then click here. Trust me. By Michael Comeau 1) Apple Wins, Bears Cry As I wrote yesterday, expectations appeared to be very low heading into Apple’s (AAPL) Tuessday night earnings report. The numbers confirmed that suspicion as Apple reported better-than-expected revenues, earnings, and iPhone unit sales. The company also delivered very strong revenue guidance, which indicates that iPhone sales are holding up much better than the bears have expected. Apple shares ripped 6.6% to $103.03 today, helping to push the Nasdaq Composite and Nasdaq 100 indices to within striking distance of all-time highs. And let’s give Warren Buffett some credit — he disclosed his stake in Apple in mid-May when Apple hit its 2016 low. 2) The Bull Returns… Sort of Equity markets were a little odd today. Apple set off a rally in the Nasdaq and the widely-watched biotechnology was very strong, but the S&P 500 barely budged. The index fell -0.1% to 2066.58 — not exactly a barnburner! Oil prices and energy stocks slumped on higher-than-expected oil inventories, and we also saw weakness in utilities, real estate, consumer staples, and transports. Overall, the action felt like run-of-the-mill digestion, though with a clearly bullish tinge. If biotech makes another run like this tomorrow, we could see the S&P hitting new highs and the Nasdaq finally making its own new record. 3) Fed Schmed As expected, the Fed left rates unchanged today and issued a somewhat hawkish statement. The Fed said that employment data points to an increase in labor utilization, and that near-term risks to the economic outlook have diminished. Initially, gold fell and the dollar spiked, which are consistent with a more hawkish Fed. However, almost immediately, those moves reversed themselves and gold ended up 1.6% higher at $1,349/oz at the equity market close. And the dollar ended up at daily lows. Presumably, traders still believe the Fed will move very slowly as Fed Funds futures indicate that the next rate hike won’t happen until well into 2017.
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