With everyone focused on the Fed’s interest rate decision, here is a look at the monster the Fed created, plus a look at the wild moves over the past two days.
FOMC
September 18 (King World News) – From legend Art Cashin: The FOMC Meeting – The FOMC will issue its statement at 2:00 followed by the Powell press conference. The conventional wisdom is that they will cut 25bp and there may be one or two hawkish dissents.
Traders will look keenly at the DOT plot (the list of individual future guesstimates from the Fed members).
The FOMC discussion may have become a bit more complicated by some volatile action in the Fed Funds market in recent days.
Overnight (Monday into Tuesday), the interbank rate spiked above 10%, shocking markets and forcing the Fed to intervene.
The intervention did not go smoothly and it had to be halted and restarted later. Even that was not fully enough and the Fed had to promise to return today.
The thinking in Wall Street watering holes mostly runs with a narrative like this:
September 15th was a corporate tax day. That may have resulted in a bigger drawdown than anyone expected. Secondly, since the Fed stopped QE, there were fewer excess funds around than recently seen. The result was an upward spike in rates as folks scrambled to drawdown the total funds needed.
That may cause the FOMC to consider reinstating some form of a short-term QE to help bridge the transition.
So – traders will home in on the Dot plots to look for a hint of future easing. They will look to see how Powell responds to any questions on the recent squeeze.
Could be a bumpy ride.
Overnight And Overseas – Asia equity markets closed with very modest changes. Tokyo and Hong Kong saw fractional losses, while Shanghai and India had modest gains.
Trading is also light in Europe. Stocks in London, Paris and Frankfurt are currently trading slightly higher.
Among other assets, Bitcoin continues to churn in the area of $10,200. Gold is off a shade, trading just above $1500. Crude is a bit softer with WTI trading just below $59. The euro is slightly softer against the dollar and yields are down a tick, or two.
Consensus – Traders will look to see if the traditional “Fed Drift” kicks in. The Fed Drift is the historic strong propensity of the stock market to rise on an FOMC day.
The Saudi/Iran situation continues to simmer and another drone strike remains a possibility.
The Israeli election left no clear winner. The temporary inability to form a government might also invite some geo-political adventurism.
Stick with the drill – stay wary, alert and very, very nimble.
Also of importance…
Wild Moves Over The Past Two Days
Peter Boockvar: The moves in money market rates have of course been wild over the past two days and with the Fed coming in today with another repo facility, something they haven’t done in about 10 years, clearly show that something is broken. The broader implications I think can be boiled down to one thing, can the Fed keep the effective fed funds rate within its target range which would follow calm in the repo market and which all directs financing in so many other areas of the economy.
Also, whether the craziness was due to the changed regulatory environment that limits dealer inventories of bonds, or the sharp increase in Treasury issuance, or the possible one time confluence of events that included corporate tax payments (that resulted in a draw on money market balances) or the reduced level of bank reserves or something else, can the Fed fix all this with a more permanent repo standing facility that can meet the system’s short term cash needs? I’d say likely but I don’t know. We are not in Kansas anymore.
The Fed Created A Monster
The Bernanke/Yellen Fed created a monster with its balance sheet, QE and interest on excess reserves and combined with regulator changes and a flood of Treasury supply reveals that central planning has gone a bit awry in this particular area of the financial system.
***KWN has now released the powerful audio interview where Dr. Stephen Leeb says the world may see $20,000-$25,000 gold CLICK HERE OR ON THE IMAGE BELOW.
Fed, Gold And FOMC
READ THIS NEXT! Fed’s Emergency Injection, Lehman Ring Any Bells? What The Hell? GOLD: May Be Setting Up For FOMC Tomorrow CLICK HERE TO READ
More articles to follow…
In the meantime, other important releases…
Gold Back Above $1,500 As Crude Oil Consolidates Gains, But Take A Look At This CLICK HERE TO READ
Today We Saw A Truly Shocking Move CLICK HERE TO READ
Trey Reik – Global Financial Chaos Is Coming And You Better Own Gold CLICK HERE TO READ
Here Is What To Expect Next For Gold & Oil, Plus A Shocking Chart Of The Day CLICK HERE TO READ
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