Get 40% Off
🤯 This Tech Portfolio is up 29% YTD! Join Now to Get April’s Top PicksGet The Picks – Just 99 USD

FOMC Meeting Trading Preview

Published 2017-02-01, 08:23 a/m
Updated 2023-07-09, 06:32 a/m

Stock markets have bounced back overnight amid a flurry of earnings and manufacturing PMI reports. In the US this morning NASDAQ Futures are up 0.5% propelled higher by positive earnings reports out of Apple (NASDAQ:AAPL) and Electronic Arts (NASDAQ:EA) while Dow and S&P futures are up 0.2%. In Europe the Dax is up 1.0% and the FTSE is up 0.5% while in Asia, the Nikkei gained 0.5% and the Hang Seng fell 0.2% on its return to trading from Lunar New Year holidays.

Currency markets are mixed today. Sterling is rallying on indications that opposition to PM May’s Brexit bill is in disarray and that it is expected to pass the House of Commons perhaps as soon as today. Sentiment toward Brexit has been changing with each step closer and additional clarity being seen as a positive, particularly since UK economic data has been so strong since the vote.

On the other hand, JPY has come under renewed pressure with Governor Kuroda being forced to defend his policies from accusations by President Trump that the Bank of Japan has been manipulating its currency lower. Gold and most of the other major currencies are consolidating yesterday’s gains against USD at a higher level.

There is a lot of news due in the US today that could potentially move the markets. The main event is this afternoon’s FOMC decision and statement. The central bank is not expected to change interest rates having announced a 0.25% increase at its last meeting in December. This time around there are three new regional Fed presidents who have never voted before (Harker, Kaplan and Kashkari), but dissent is unlikely this time out.

The statement is likely to attract the most attention, with traders looking for signs of whether the Fed is thinking about raising interest rates in March or not. With the new administration accusing China, Japan, Germany and others of currency manipulation and complaining about the high dollar, political pressure on the Fed from the campaign to raise rates aggressively appears to be fading heading into Chair Janet Yellen’s last full year of her term.

For traders, the number of increases is important because at 100 and over, the US dollar is pricing in 4 or more increases this year. To get to four and keep to gradual increases the Fed would need to raise rates in March. If the Fed passes on March, the party line of 3 increases would still be possible, but my forecast of 2 would become more likely. A move away from March for the next hike would be seen as dovish (or at least less hawkish) and could decrease dollar support.

Also keep an eye on the statement for any discussion of the Fed’s balance sheet. There has been chatter that the Fed is starting to think about starting to slowly unwind the massive QE stimulus of the last several years. Any hints toward shrinking the balance sheet could be seen as hawkish and could offset one or more rate hikes and support the dollar.

Ahead of the FOMC decision, there are a number of significant US economic reports including ADP payrolls and Manufacturing PMI. ADP is expected to come in just below 170K. The ISM PMI report could attract interest following yesterday’s big miss in Chicago PMI. Both of these reports may be viewed through the lens of whether they increase or decrease pressure on the Fed to raise interest rates soon.

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.