The Morning Hammer: Ahead of the Fed, Markets Show Fear

Global markets are rallying this morning as commodities rebound and the dollar retraces ahead of Wednesday's big FOMC rate policy announcement.

Traders are pricing in a mere 20% probability of a hike this Wednesday, so traders will mostly be looking for clues to see if the Fed moves in December.

Europe is up nicely despite continued weakess in Deutsche Bank (DB) which is facing liquidity concerns due to the DoJ's demand for a $14 billion payment to settle an MBS dispute.

In Asia, the overnight interbank yuan rate skyrocketed amid speculation that China's central bank is intervening to boost its currency.

Traders are also shaking off terror concerns in New York City. Over the weekend, explosive devices were set off in New York City and Seaside Park, NJ. Another devices was found in Elizabeth, NY.

Venezuelan President Maduro said OPEC members are close to reaching an agreement on stabilizing the market.

However, such an announcement is likely not forthcoming at the September meeting next week. OPEC's Secretary General said September is a “meeting of consultation and not of decision-making.”

SPX futures are modestly positive this morning, much to the chagrin of the bears.

Sentiment is leaning modestly bearish right now.

As always, the bears say everyone's bullish and the bulls say everyone's bearish, but the numbers (which too many people ignore) are all over the place.

The 10-day moving average of the ISE Sentiment Index is 91, which points to modest bearishness.

The CBOE equity put-call is 0.65, which is about in-line with the 6-month average.

The AAII sentiment survey shows that 27.9% of investors are bullish vs. a long-term average of 38.5%.

The only data that really shows traders being complacent is the Investors Intelligence Survey, which shows that 49% of newsletter writers are bullish.

So even though markets are just -2.5% off the highs, traders very quickly rushed to price in some downside.

Volatility has returned to the market after 2 months of nothing, though we could end up in a holding pattern until Wednesday, which is not only has the Fed, but a Bank of Japan rate decision. There has already been chatter that the BoJ will go even further into negative rate territory.

I'd love to get some excitement ahead of then, but I'm not counting on it.