What’s Happening: It’s the Final Countdown to the Fed Mystery
We're one day away from a very big Wednesday featuring FOMC and Bank of Japan rate decisions.
Right now it looks like the BoJ is a bigger deal, since most traders think a Fed rate hikes is off the table tomorrow.
Fed Funds futures imply a mere 20% probability of a rate hike.
Bloomberg ran an interesting story this morning about how Barclays and BNP Paribas think the Fed moves tomorrow:
Two of the Fed's 23 preferred bond-trading partners — Barclays Plc and BNP Paribas SA — are betting against their peers and the bond market by forecasting officials will raise rates Wednesday. It's the first time more than one dealer has gone against the consensus during the week of a policy meeting since last September, data compiled by Bloomberg show. Economists at both banks say traders have too steeply discounted officials' intent to hike after the Fed has remained on hold for longer than expected.
It's a tricky situation to say the least.
Remember, the rate decision itself is not everything. The signaling for the future pace of hikes is just as important.
There is a very real possibility that the Fed hikes but signals an extremely slow pace of future hikes.
But no one really knows, so be very careful when placing your bets.
SPX futures are up fractionally this morning despite a -1.1% drop in oil.
Yesterday, we saw large-cap tech leaders sell off into the close, pushing the index to finish roughly flat, though we saw nice outperformance in small caps and biotech.
It still feels like traders are happy to stay in a holding pattern until the BoJ and FOMC news hits tomorrow, so it's going ot be hard to make much sense of the action.
In the energy patch, Brazilian giant Petrobas (PBR) cut its 5-year investment plan by 25% to $74.1 billion.
Wells Fargo (WFC) caught an upgrade from Morgan Stanley — maybe I should have jumped on it, but I'll reassess post-Fed.
Tessera (TSRA) is buying DTS (DTSI) for $850 million.
Bloomber is reporting that Bayer may drop the Monsanto (MON) name if their merger ever gets done — seems like a smart idea.
The economic calendar's pretty light — just housing starts and building permits.
But don't worry — we SHOULD get some excitement tomorrow… though it's easy to forget that SHOULD is the most dangerous word in financial markets.
Good luck out there!
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