The FOMC Statement will be released later today via the Federal Reserve and the monthly press conference with Fed Chairwoman Janet Yellen at the helm. The Fed is expected to stay on it current path and continue to decrease the amount of bonds purchases it is making. Having said that the FOMC Statement this month will be examined closely by investors who are looking for signs of discomfort.
While many analysts continue to sing the praises of the U.S. economy, there are some, Digital Markets Advisor among them, that have not been impressed with U.S. data and see economic problems that have not been solved. The States is not experiencing growth in a fashion that corresponds with the present outlook from the Fed and the real employment situation remains disengaged from the official stance of the current administration. Therefore it will be interesting to see the exact wording from the FOMC Statement and if it becomes less optimistic or at least issues a cautious undertone.
While the Empire State Manufacturing Index certainly came in with a better reading on Monday, other important data has been lacklustre to negative. Tomorrow the Philly Fed Manufacturing Index will be published.
Equity markets have been choppy the past few days as investors have taken a cautious path. This has been largely explained away because of the crisis in Iraq and fears that a large percentage of the world’s oil supply will be cut off. Brent Crude has reacted to this by gaining in value. WTI has also kept its higher range and without any clear sign of stability about to be delivered from Iraq, speculation will likely continue to grow for Crude Oil which will bring volatility into the commodity. But is Iraq the real reason for caution among equities, Digital Markets Advisor does not think so.
Gold as of this writing has been in a rather vicious range. The precious metal as of this writing is near 1266.00 USD. Gold has been under pressure for a while, and though it did manage to come off of critical support levels it is still in dangerous waters and inflation data globally remains muted. An example of deflation can be easily pointed to via recent German and the U.K. data, other spheres are not experiencing much in the way of inflation either.
Which brings us back to the U.S. where some have expressed a belief that the Fed should start considering raising its interest rates sooner rather than later. However the facts seem to indicate that even in the States inflation is very slight. And combined with a lack of growth given the most recent GDP report, it would seem to be an ill-conceived idea to begin raising interest rates now. No one expects the U.S. to raise interest rates today via the Federal Reserve, but the inclination has been to suggest that the idea is gaining traction. However, without real growth and the other global economic giants struggling, it would be a dangerous game to begin raising rates when the waters remain treacherous.
The EUR has remained in a rather weak range since the ECB made a negative interest rate a reality. The Single Currency remains near short-term support and with today’s FOMC announcement in the cards, FX markets including the EUR are bound to get tested. While speculation will increase volatility before the announcement, it is the reading of the FOMC Statement that will need to be digested tonight and tomorrow which could have the most effect.
Equity markets including Wall Street will be keen to see that the Fed is keeping money cheap. Risk appetite remains large on the major indexes including other global bourses and investors want to make sure that the faucets will be kept wide open. While that is likely to remain the story, the question is how long Wall Street can sustain gains while ‘main street’ remains under cloudy skies?