Markets have lost ground from the opening bell, but hat may be investors hedging their bets ahead of the FOMC rate decision that has everyone sitting on the edge of their collective seats. One way or another, you can count on volatility to be impressive for the first 10 minutes after the minutes are released.
Here is the current market situation from CNN Money
North and South American markets are higher today with shares in Mexico leading the region. The IPC is up 0.98% while U.S.'s S&P 500 is up 0.31% and Brazil's Bovespa is up 0.11%.
NEW YORK (Reuters) - No sooner will the Federal Reserve raise U.S. interest rates than it must make more decisions on how to drain markets awash in cash and, further down the road, how to shrink its swollen balance sheet.
NEW YORK (Reuters) - Oil fell on Wednesday, snapping a two-day rebound and heading back toward 11-year lows after U.S. government data showed a huge build in crude inventories, surprising market players who had expected a draw.
WASHINGTON (Reuters) - U.S. housing starts in November rebounded from a seven-month low and permits surged to a five-month high, signs of strength in the housing market that could give the Federal Reserve more confidence to raise interest rates on Wednesday.
WASHINGTON (Reuters) - Eight years after a devastating recession opened an era of loose U.S. monetary policy, the Federal Reserve was set on Wednesday to raise rates for the first time since 2006, in a sign the world's largest economy had overcome most of the wounds of the global financial crisis.
(Reuters) - Drugmaker Valeant Pharmaceuticals International Inc on Wednesday said that fourth-quarter profit was hit when it cut ties with Philidor Rx Services, but that it could contain the damage next year and grow profit.
With Treasury volatility spiking in "panic" mode but equity volatility in "everything will be fine" mode, there is plenty of room for the algos to go wild around this afternoon's decision. As Nanex shows, the last few years has seen lower and lower liquidity on Fed days as the pattern of liquidity collapse intraday provides just the ammunition for the instant buying-panic in the first 2 minutes after the decision.
Equity traders seem extremely complacent...
Which is bad news as liquidity has been tumbling on Fed days in recent years...
But there is only one pattern the algos know... Instantly buy! No Matter What!
But 1415ET-1430ET is the best cumulative performing period on Fed days...
At 2 p.m. EST, the only thing the financial world will care about and discuss will be the Fed's [first rate hike in 9 years|epic disappointment]. So for those who still haven't made up their mind about what the Fed's [dovish|non-dovish] rate hike means, here is all you need to know.
First, a list of all the key announcements and public statements that everyone will be parsing at a feverish pace, courtesy of Citi:
14:00 EST/19:00 GMT: Statement and economic projections
To be released here: http://www.federalreserve.gov/monetarypolicy/fomccalendars.htm
Statement will detail if anyone dissented to the decision. If so, most likely Evans.
Expected alongside the statement: Implementation/operation details note released by NY Fed regarding lift-off.
NY Fed website press releases: https://www.newyorkfed.org/press/index.html
Adjust the target band: increase overnight reverse repo rate from 0.05% to 0.25bps
Of primary interest will be the size of the overnight reverse repo facility that the Fed will put in place to pull short rates higher. Citi US
Rates Strategy doesn't think it will be unlimited, but a size large enough that will keep short rates from falling below the 25bp floor " and the size could be as high as USD1tn.
The o/n reverse repo program is meant to be temporary in nature and will be phased out when the need to pull fed funds higher is not needed. It will be interesting to see how long the RRP program will be needed " perhaps till we get closer to 1% on IOER.
Doesn't expect changes to size of term reverse repo operations or any further guidance on ending re-inve ...
Submitted by Charles Hugh-Smith of OfTwoMinds blog,
The upside is ephemeral, illusory or wishful thinking; the downside is real and lasting.
There's no upside left--not just in the real economy, but in jobs, politics or policy tweaks. Yes, there will be huge relief rallies in the stock market--relief that the Fed is still omnipotent, that the Fed didn't destroy the world by withdrawing liquidity, etc., etc., etc.--but in terms of sales and profits, there's no upside left: an increasingly nervous upper middle class is reining in profligate spending, while everyone below the top 10% is running out of credit cards, student loans, etc. to tap.
Whatever surplus the real economy generated has been skimmed by financiers, lenders and the central state. Stock buybacks have boosted the wealth of corporate managers and institutional owners while creating zero jobs; lenders have feasted on high-interest credit cards, federally backed student loans and subprime auto loans that are immediately spun off to credulous suckers (Widows and Orphans Fund of Norway, et al.) as high-yield securitized debt.
Anyone working for Corporate America or government has little upside but plenty of downside: bonuses are being slashed, divisions closed, sold off or privatized in the case of government, all to cut costs.
State and local pension funds, bloated by seven years of speculative frenzy, are about to start bleeding from every orifice as reality and risk intrude on the central banks' fantasy of never-ending asset bubbles.
Whatever pension and bennies you were promised--start practicing your fractions, because only a fraction of the bloated promises made by politicos desperate to get re-elected can be paid in the real world.
On October 30, the BOJ was widely expected to do something and disappointed markets by doing nothing.
Then, on December 3, the ECB had pushed markets into a rabid, EURUSD-shorting frenzy only to dramatically disappoint by doing the barest of minimums compared to the historic pre-jawboning by Draghi and company.
Today, according to the market there is nearly a ~80% probability that the Fed will announce the first rate hike, precisely 7 years to the day after it cut rates to zero.
But can it too disappoint, either by not being dovish enough in its language, or by actually not following through with the most telegraphed rate hike in Fed history?
According to ScGen, the Fed is widely expected to start tightening policy on Wednesday and adds that "after the BoJ and ECB, we see a risk that the market will be wrong-footed for a third time, and that extreme positions built ahead of tightening will be reversed."
Perhaps, we will see shortly, although when everyone is on the same side of the boat, we agree that the temptation to "sell the news" will be huge, a temptation which could manifest itself most directly an unwind of an unprecedented amount of USD longs.
Here is what else SocGen believes:
US assets tired: Fed liftoff, the first step to the next recession (H2 18). The US economy has behaved as expected in recent months and looks strong enough for the Fed to start normalising its monetary policy. We expect the tightening cycle to end by 2019, albeit at a relatively gradual pace. We think US assets are tired. We have already reduced our allocation to Treasuries to focus on European peripheral nominal bonds and ...
Congress is poised to make permanent a tax break for certain charitable donations of IRA assets. The popular measure, which has nearly expired several times, can help lower the tax bill for older owners of individual retirement accounts.
The headlines say seasonally adjusted Industrial Production (IP) declined (the manufacturing portion of this index was unchanged month-over-month). Consider this a soft data point that was slightly worse than expected. Our analysis is slightly better than the headline view.
The Swiss Bankers Association has posted information online including the names, nationalities and last-known residences of some 2,600 owners of safe-deposit boxes and accounts that have remained untouched for 60 years or more.
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