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FOMC Announcement to come at 12:30pm EST today and will be followed by Ben Bernanke's press conference at 2:15pm EST. It was only a little more than two weeks ago that the ES traded down as low as 1255. The ES has been bid up 100+ points since then and you can attribute the buy orders as speculative bets that the Fed would announce some new easing measures or stimulus or QE3 at the next meeting (which will be announced today).
Things looked much worse a couple of weeks ago than they do today, at least in terms of stock market prices and an argument for more easing was more plausable. My thoughts on the announcement today is that there will be no new major news. Bernanke will repeat the same things we have heard in the past...
- Unemployment levels remain elevated, but labor market conditions are improving
- Increases in inflation levels are transitory, longer term inflation levels remain stable
- The committee expects to see moderate growth continue over the short-term and to pick up gradually over coming quarters. This in turn will help bring down levels of unemployment over time.
- The committee expects to maintain a highly accommodative stance on monetary policy for the foreseeable future
With stock prices only 4% off this year's highs and economic conditions relatively stable, there is no way the Fed can rationalize another round of QE. Operation Twist is scheduled to end in September, so look for the Fed to announce that this will be extended. That will not be a surprise and should not provide any catalyst for buying. Without some form of stimulus in the form of QE or some sort of assistance to help the debt situation for countries like Spain, Greece, Italy or any of the Other PIIGS, expect the markets to be disappointed. This is my expectation and therefore I will be looking to sell any rallies looking forward assuming the Fed does not offer any surprises. We'll see... I'll comment following Bernanke's press conference...
To summarize, I expect the Fed to disappoint by not giving the market what it has become accustomed to getting, more QE. This is negative for the stocks and means that I am bearish looking forward. I like selling rallies and will not be surprised to see lower lows in the coming months. If Bernanke does offer up any surprises today, my outlook will change, we'll have to wait and see.
Operation Twist extended as expected. Repetition of previous Fed statements as expected. No new QE as expected.
ReplyDeleteMarket initial reaction selling. As expected.
Full Text:
Click here for full text of FOMC Statement
after the Fed essentially disappointed, markets rallied following a news byte by Angela Merkel who said that, "bond purchasing by bailout in Europe is a possibility..."
ReplyDeleteCoincidence that this news followed the disappointing Fed announcement?
Nothing significant said in Bernanke's Press Conference. No new major developments in terms of monetary policy from the Fed as expected. Following the recent run-up in price since the beginning of June in anticipation of Fed action, this leads me to believe future price action (at least in the short-term) is down. My bias is to sell the rallies. No changes.
ReplyDelete