Monday, September 14, 2015

S&P’s Could Put a ‘NO’ Exclamation Point on Sep FOMC Hike




It is entirely possible that U.S. equities put a ‘No’ exclamation point on the chance for a September FOMC policy response.  Right now, the S&P’s are trading near a trend line ( ESU5 Sep emini future 1949.7-daily) that has provided support, advancing from the August 24th low.  A settle below that trend line would likely collect some additional bearish sentiment. The repair since that late-August date has been inconsistent and modest.  Volatility has subsided, but no overwhelming hurdles, technical or otherwise, have been bested to suggest the underlying trend in U.S. domestic (or global) equities has returned bullish. 

As such, and with an eye on the still uncertain monetary policy conditions (see ‘Remove Accommodation or Leave Uncertainty’), we are not out of the woods with respect for volatility and potentially violent moves in equities and commodities.  With conditions surrounding the FOMC meeting unsettling, the risk for a dramatic sell-off is escalated. 

Equity and commodity markets needed to have recovered more substantially in order to satisfy enough FOMC participants that they would not jeopardize U.S. domestic growth, employment and inflation prospects by firming at the upcoming September meeting.  While an equity sell-off is not necessary to conclude the Fed won’t move, if it happens and there appears an increasing chance it does, then few market participants would be left expecting a rate response on Thursday.  


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