John M. Bland
Fed Funds To Rise 25bp
Odds strongly favor an increase in the relatively new Federal Reserve corridor for the Fed Funds rate. It currently is 0% to 0.25%, and the expectation is for the central bank to raise the target to 0.25% to 0.50%. The Fed has moved to a target range for Fed funds from a single point, owing to concern that it will be difficult to tightly manage rates after an enormous amount of liquidity was injected into the system, as a result of its Asset Purchase Program otherwise known as Quantitative Ease (QE). At this juncture market players are nearly universally convinced that this rate hike will take place and presumably are positioned accordingly.
For traders, beware of markets when there is a strong market consensus for a given outcome. If "everyone" is already positioned for the rate hike on Wednesday, there will be no one left to react to the news when it is released. There is an old saying in trading that a successful trader will "buy the rumor, and sell the fact". You don't want to be initiating a position during a wave of profit-taking. The initial round of Fed tightening in almost a decade is a major event for the markets, and could elicit a large market response. Those looking to trade the announcement should focus more on the Fed policy statement than the change in rates, which is virtually a given. Key in the statement will be whatever signal the Fed sends on the course of future policy tightening.
The upcoming week is an active period for market-moving announcements.
-- Monday December 14, JP- BOJ Tankan Report
-- Tuesday December 15, GB- CPI, DE- ZEW Survey, US- CPI
-- Wednesday December 16, EZ/US- flash PMI's, GB- Employment, US- Housing Starts/Permits, Industrial Production, Fed Policy Decision
-- Thursday December 17, DE- IFO Climate, GB- Retail Sales, Weekly Jobless
-- Friday December 18, JP- BOJ Decision, CA- CPI, US- flash Service PMI
John M. Bland