Opinion is split over the Fed decision though I would suggest the split is not even.
My first thoughts were -
- If the Fed were FIFA there’d probably be an investigation going on right now into emerging market bribes.
- It's paradoxical that the market moans that the Fed is influenced by the market and then the market moans that the Fed hasn't done what they want.
- Fed cut volatility.
- Perhaps instead of weening the market off low rates the Fed is trying to ween markets off Fed credibility to make it's own damn decisions via the rest of the curve.
- As with China and Greece, 'Fed risk' has to be moved from the acute ward to the chronic ward.
An event risk has just passed and the immediacy of imminent doom slips back and any belief you have as to the long term outcome has to be moved out in a smear across weeks rather than days of future ‘maybes’. The risk may be ahead but it is no longer today. The bears will be arguing that the end of the world may not have occurred today but it damn well will soon and the bulls will be breathing a sigh of relief for now.
Yes OK, but I think we can squeeze in a quick holiday before we have to sell the cat.
But what for positions? As mentioned in Tuesday’s post, the most likely outcome is a fall in volatility and we have seen it coming off pretty hard over the last 2 days. But to expand on that, a fall in volatility normally invokes a period of 'carry creep' where if nothing is going to go wrong right now, yield starts to dominate as the cost of carry erodes shorts on yielding assets. In other words risk assets grind higher and, with the bear call so dominant, a grind higher will be accompanied by wails of pain and disbelief,
Watching the price action in that uber-benchmark of SP500 has been fascinating since the announcement. Up, down, up, down and as with all roller coasters each oscillation is accompanied by whoops from those on the ride, but the ride ends where it started. So far SPX is within a gnat's crotchet of where it closed yesterday. Interesting to note that the extrapolationists are having a ruler snapping time trying to call the next move with the intraday movements being so wild, but a low close sees the majority calling it lower. Because it closed lower. I am also aware, having been reminded by @NicTrades, that 'a red market on Fed day usually means follow through the next day'
Technically speaking the 1980-2000 SPX area has encompassed a myriad of important levels and to see the blow to 2020 can lead us to assume that many stops where taken out leaving us room for a resumed fall.
But there is a piece of the jigsaw that needs to play out first and that will be Asian markets overnight. Lower for longer US rates ‘should’ be of assistance to all those Emerging Market countries that have been listed as being most damaged by a Fed rate rise (most of them). With Asia woes having been a major driver of sentiment recently it makes tonight's moves all the more important.
Nothing is easy re markets, but the Fed is back in the box for a month though I note that Octobers have a tendency to provide market and hence confidence jitters that could give the Fed another reason to delay.
For now I am going to sit back and brace myself for the deluge of articles telling me why the Fed was wrong. On that note if someone comes across one praising them can they send it to me?
Update 18/9 11am BST - Looking at this morning's price action I think we have stumbled upon a new market's circle of life.
Fed steady -> EUR/USD up -> Dax Down -> DM eq down -> OMG -> Fed steady