Tag Archives: Federal Open Market Committee

Will the Fed raise rates on Thursday?

Do you belive the Fed will hike on Thursday?

If so, you are among economists and strategists that belive so, but traders are betting strongly against it, and that alone is enough to wait at least one month before liftoff, according to Morgan Stanley.

CME FedWatch tool says the probability is at just 21 percent, and Morgan Stanley said its readings on trading show a 30 percent probability that «overstated the chance» of a rate rise.

Lessons learned in 1994 that reverberated into 1999 and 2004 will prelude a rate hike until the futures market prices one in. In 1999 and 2004, the central bank waited for market expectations to exceed 50 percent before moving, learning a lesson from 1994 when it tightened.

CNBC said there is one good reason the Federal Reserve won`t vote to raise interest rates, and that`s History. So, what is all this about?

percentage

Rates have been near zero since the recession, and the Fed have delayed its first-rate hike since 2006. But why is the interest rate so low? See it like this; The lower the rates, the more problems it is in the economy.

When the economy is strong and everything is okay, interest rates are hiked in order to curb inflation, but when we face tough times, the Fed will cut rates to encourage lending and inject money into the economy.

Investors can predict what the Fed (or other central banks) will do by looking at economic indicators such as;

Retail Sales: Consumer spending
The Consumer Price Index (CPI): Inflation, and
Non-farm Payrolls: Employment levels

If these indicators improve and the economy is doing well, rates will be raised, but if the improvement is small, it will be maintained. Drops in these indicators can mean a rate cut in order to encourage borrowing.

Other indicators to foreshadow changes in the economy is building permits, average weekly hours, new orders and the spread between 10-year Treasuries and the Federal Funds Rate, which is published every month by The Conference Board.

Raising rates will have an impact on the markets. Raising interest rates will cause the dollar to appreciate over the Euro, which means the pair EUR/USD will decline, which is good for the U.S dollar.

If Chairwoman Janet Yellen sends out a dowish signal on Thursday, it may help to boost stocks and undermine the dollar. Investors will pay less attention to gold and allocate more of their capital into equities.

A hawkish message, including a rate increase, may help unpin the dollar and undermine stocks and gold. So, the upside will be limited for gold in both scenarios, unless we see a massive selloff in equities and the dollar.

Changes in monetary policy will ultimately cause currency exchange rates to change, and paying close attention to the news and analyzing the actions of the Fed (in this case) is vital for forex traders.

The interest rates impact currencies because the greater the rate of return, the greater the interest accrued on currency invested and the higher the profit. So how can you profit on it? The strategy is very simple, but also very risky. You can simply borrow currencies with a lower interest rate in order to buy currencies that have a higher interest rate, and this strategy is known as carry trade.

The shift in interest rate represent a monetary policy-based response as a result of economic indicators that assess the health of the economy. Most importantly; they possess the power to move the market immediately. So, how healthy is the U.S economy?

Nonfarm Payrolls is up: 215K
May, June Revisions: 14K
Unemployment Rate: 5,3%
Avg. Hourly Wages: 0,2%
Labor Force Participation: 62,6%
Consumer Price Index: -0,1%

A key measure of inflation dropped 0,1% last month for the first time since January due to sliding gasoline costs, and this is something for the FOMC (Federal Open Market Committee) on its policy meeting Wednesday and Thursday this week.

Central bank leaders have said they want to be confident inflation is heading toward their 2 percent target. Low inflation is a sign of economic weakness, and raising rates too soon risks harming the economic expansion.

IMF (International Monetary Fund) and the World Bank have asked the Fed to delay its first-rate hike since 2006.

The world`s financial watchdog is the BIS (the Bank of International Settlement) and are considered the «bank of central banks». BIS has warned that a Fed rate hike could have a huge effect on the global economy and particularly in emerging markets.

According to a BIS report, much of the global financial system remains anchored to U.S borrowing rates, and a rate hike at home tends to have an impact on higher rates in other economies. The enormous amount of debt in the emerging markets has the potential to move the markets even with a small rate hike.

Everybody knows that sooner or later, a rate hike might be necessary. No matter the results in the financial markets will be. Some belive the Fed will hold off on raising rates until December.

I really look forward to Janet Yellen`s speech on Thursday at 2 p.m. Washington time.

 

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Disclaimer: The views expressed in this article are those of the author and may not reflect those of Shiny bull. The author has made every effort to ensure accuracy of information provided; however, neither Shiny bull nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in precious metal products, commodities, securities or other financial instruments. Shiny bull and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication. UA-63539824-1.

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Filed under Commodities, Emerging markets, Politics, Stock market

FED raise rates

Silver dropped -2,60%, while gold is down -1,01% after the news from Fed Chair Janet Yellen. Oil and Copper is also down today. Janpan`s Nikkei 225 is down -1,65% to 14,224 points. Hang Seng is also down together with the rest of Asia.

Janet Yellen

(Picture: Fed Chair Janet Yellen)

The U.S indices traded down yesterday too and Europe is also in a red territory. Most investors don`t know what to do right now. It seems to be a red opening in the U.S later today. This is all reactions on the FOMC meeting yesterday.

The Fed will probably end its massive bond-buying program this fall and probably start raising interest rates around 6 months later. This comment sent stocks and bonds tumbling. We will see a more aggressive path toward higher interest rates than anticipated she said yesterday.

The Federal Reserve has held the interest rate near zero since late 2008. They have pumped trillions into the markets with its bond purchases. All this because they tried to foster a stronger recovery. Despite the QE program, the growth has been very slow.

The change in its rate hike guidance did not mark a shift in its intentions and they will wait a «considerable time» after shuttering its asset purchase program before pushing borrowing costs higher. «Considerable time» means about 6 months.

But, as Janet Yellen said: «It depends – what the statement is saying is it depends what conditions are like».

Most people don`t know it, but the best period of economic growth in all U.S history was without a central bank. Do U.S really need Federal Reserve? They created the markets crash in 1929, and so far the FED has been a disastrous.

The FED started about 100 years ago, and since then the dollar has lost more than 96% of its value. The size of the U.S national debt is more than 5000 times larger. The Fed`s «debt-based» financial system has trapped the U.S, and are on the verge of the greatest financial crises in history.

Congress could have shut down the FED long time ago. I HATE DEBT!

Reports today:

08:30 AM ET Unemployment Claims
10:00 AM ET Existing Home Sales
10:00 AM ET Philly Fed Manufacturing Index
10:00 AM ET CB Leading Index m/m
04:00 PM ET Bank Stress Test Results

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Shiny bull. The author has made every effort to ensure accuracy of information provided; however, neither Shiny bull nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in precious metal products, commodities, securities or other financial instruments. Shiny bull and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.

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Filed under Quantitative Easing, Stock market

Market overview

European shares is up today, led by Aggreko with a bullish trading update. The European market is up despite the concern about the FED`s tapering plans this week. Much higher fear in Japan, while Nikkei sled -1,6%.

The S&P was down -1,65% last week. The worst week since August. Facebook (FB) went in the opposite direction and bucked the market trend lower, finished up +11,22%, trading at $53,32. Facebook will now join both the S&P 100 and the S&P 500.

Many investors are very satisfied with this bullish year 2013, but now all the investors eyes are on the Federal Reserve later on this week. The FED have a two-day policy meeting Wednesday.

FED is very powerful! Everything they say have a huge impact of the financial markets. The question now is whether they will continue QE or start to taper, the huge bond buying program that has made the massive mega-rally on Wall Street.

Look out for the brand news later on this week. The FED Statment will be launched at 2pm ET. Later on the same day, a FOMC Press Conference will be held at 2.30pm. This is very very very important news.

News today (all times are Eastern Times) : Empire State Manufacturing Index at 8:30am, TIC Long-Term Purchases at 9:00am, Capacity Utilization Rate & Industrial Production at 9:15am.

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Disclaimer: The views expressed in this article are those of the author and may not reflect those of Shiny bull. The author has made every effort to ensure accuracy of information provided; however, neither Shiny bull nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in precious metal products, commodities, securities or other financial instruments. Shiny bull and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.

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To taper or not to taper

The FED`s FOMC minutes, said yesterday that they could see the Fed tapering its $85 billion-a-month bond-buying program at one of the next few meetings the coming months. In addition, the committee members also saw the U.S. economy growing at a moderate pace.

This is not something new to us. They have earlier said that they want to see the unemployment rate below 6,5% and a better growth with a stabile inflation before they start to taper. Therefore, the U.S employment report in early December will be on traders and investors watch list now.

Once they came out with the news yesterday, the dollar index shot to its daily high, which is a bearish signal for the precious metals traders. Gold and silver prices dropped sharply. Where are the gold headed now?

From 1976 into the peak in 1980, gold rallied from $101,50 to $873 an ounce. A big bullish trend for the gold that time. Fear and greed are reflecting this chart, while people trade on emotions.

The gold indes peaked out and the market backed off and settled into a sideway trend from about 1982 to 1996. Then it started a sideways trend from around $281 to $514. A loooooong sideways trend for a loooong periode of time.

It went sideways in the 90`s and people considered the market to be «dead». But then the market changed in 2001 – 2002. It started a new trend that peaked out in September 2011, trading at $1900.

The chart is now very similar to the chart back in the early 80`s. If this is the future for gold, we are likely to see a sideways trend now.

But many people expect a big drop now because the market seems to be overbought. If that happend, we will se a change for the gold price. Probably a big jump. News today: PPI & Unemployment Claims at 8:30am, Philly Fed Manufacturing Index at 10:00am.

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Disclaimer: The views expressed in this article are those of the author and may not reflect those of Shiny bull. The author has made every effort to ensure accuracy of information provided; however, neither Shiny bull nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in precious metal products, commodities, securities or other financial instruments. Shiny bull and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.

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Filed under Stock market, Stocks

Beginning of the end of QE?

The FED started its two day monetary meeting yesterday, and today is the day for the big news, the most important news in a long time, and the market consensus is that the FED will begin to rein in its stimulus program. Investors expect the FED to reduce its bond purchases by $10 billion a month. From $85 billion to $75 billion a month.

This tapering is expected and the equity market may not move so much from here. Nor should the goldprices move so much, because so far in september we have seen a huge sell off in the goldprices. The tapering is largely priced in.

In my TA earlier with the headline: «where is the bottom?», I see a higher high, and a higher low. 50% retracement is at 1307. A great support. I will not be surpriced if the goldprices might rise after the FOMC meeting today.

I will pay attention to the FOMC Statement & Fed Funds Rate today at 2:00pm, and FOMC press conference at 2:30pm. Other important things to follow today: Building Permits at 8:30 and Crude Oil Inventories at 10:30.

Ben Bernanke is using the expected tapering as a way to exit his FED Chairmanchip. To reduce the QE he will argue that his money printing program has a positive impact on the market, and the size of the move is symbolic. So, this is the beginning of the end of quantitative easing?

Nope. The debt is too high. That`s why FED is printing money. They use QE to finance the federal budget deficit. The debt is so high and there is not enough buyers in this world to buy all the bonds. If the FED stopped to buy these bonds by QE, the bond market in the US would crash, and the interest rates would go straight up to heaven!

QE will never end.

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Shiny bull. The author has made every effort to ensure accuracy of information provided; however, neither Shiny bull nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in precious metal products, commodities, securities or other financial instruments. Shiny bull and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.

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Filed under Commodities, Stock market