Right now, everyone’s expecting the Federal Reserve to hike US interest rates.
Fed officials have been dropping hints left, right and centre that they’re ready to raise – that everything’s tickety-boo with the economy and that no more easing is needed.
Meanwhile, in Europe the ECB last week avoided committing to an extension of its bond buying programme, aimed at stimulating the Eurozone economy.
And, reports the Wall Street Journal:
“Investors are also concerned that the Bank of Japan is nearing the limit of its bond-buying program and may reduce its purchases of the country’s long-dated government debt.
“That has upended a conviction that has shaped financial markets over the last two years: that central banks would keep on easing monetary policy.”
In other words, investors and traders think the era of easy money to prop up the economy and markets is coming to an end…
Trouble is, that’s rattled the markets.
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Bond yields have been on the rise. And that’s sent bond prices down.
And, as Tom Tragett noted in his Currency Wars Alert update this morning, that panic has started spilling over into stock markets too…
“The fallout in the global bond markets finally worked their way into the equity space on Friday. The US markets certainly suffered their heaviest one day falls for quite some time as the prospect of rising bond yields saw a rush to the exit there as well…”
Here in the UK, we’ve seen the red ink on our stock screens, too. Well done if you took a short position on the FTSE last week. From any level last week, you should be in the money – with the index down some 240 points or 3.5%.
In fact, it was one of the ideas I was looking at last Thursday, with a view to sharing with Pro readers. The plan would have been to go short from around 6,832.
I only wish I’d gone through with it. You know how it is sometimes – when you like an idea, but one thing doesn’t quite make sense. And if there’s a niggling doubt, I usually avoid it. Especially when it’s something I plan to share out with others.
Too bad, it’s looking quite good at the moment – and a welcome hedge for long positions.
I’m not looking to chase it lower right now, though. I’d rather wait and see what comes from the Fed later today.
At 6.15pm this evening, one of the more dovish of the Fed’s policy voting committee members, Lael Brainard, is due to give her two cents’ worth on what the Fed is likely to do.
This from CNBC:
“Brainard has gained a reputation as a dove, meaning she is generally in favor of keeping rates low. In fact, remarks she made earlier this year showed she is even more cautious about rate hikes than Yellen.
“Whispers have been traveling through the market, though, that her remarks to The Chicago Council on Global Affairs could show a change in mindset. If that turns out to be the case, markets could revolt.”
In other words, markets including the dollar – and anything it trades against it – as well as bonds and stocks could be sensitive to Brainard’s comments.
To be clear, if Brainard switches from dove to hawk (i.e. she leans more in favour of a hike), then the US stock market sell-off se saw on Friday could intensify. If it does, expect the FTSE to lurch lower again tomorrow.
But if she maintains her dovish tone – and undermines the case for a move higher in rates – then we could hear a loud cheer from investors… and a surge in the indexes on both sides of the Atlantic.
This could set the tone for the first half of this week. Let’s see what she says.
As for later in the week, pay close attention at 12pm on Thursday. If the ‘nuclear option’ gets triggered, all Hell could break loose. Hardly anyone is talking about this. And when no one is expecting something – that’s when big surprises can happen… throwing up big moves in the markets.
Could this guy be right?
If he is, and you know how to play it…
Well, you decide if you want to get in on it. It’s high-risk. But see if you feel the potential rewards make that attractive to you. Details here.
Download your FREE 'Three Essential
Forex Indicators' report today!
Inside your free report, you'll discover an easy-to-use guide to three technical indicators with the power to seriously improve your trading and change the way you make money from forex.
And, you'll also receive a free subscription to Profit Watch - the hugely informative forex newsletter that's an essential read for ANY trader, new or old.
I respect your privacy and will never pass on your email address to anyone else.
The post Let’s see what she says this evening appeared first on The Daily Reckoning - UK Edition.