Yesterday the S&P 500 futures traded in what felt like a holiday trade. After trading in a quiet 10 handle range during the globex session, the S&P opened the cash session and failed to run orders to the buy or sell side. The regular session maintained an 8 handle range in what was the most narrow RTH non-holiday trading range since late May, on the lowest non-holiday total volume since before the August correction sell-off. Early in the day when buy and sell programs failed to break the overnight range, it started to feel like index traders were in for a long day, and the session did seem to drag on forever. Late in the day the MiM (market-imbalance-meter) began to show over $400 million to sell, and did back off before the MOC (market-on-close) was announced to be a sell of $360 million. The market shrugged off any late in the day attempts to expand the tight range. Last night in globex, the futures maintained a tighter range than Monday’s globex session, having traded in a 7 handle range on little overseas news.
FOMC Meeting Begins Today
Today’s calendar begins to get a little busier with some morning releases, but all eyes will be watching the FOMC meeting that is set to begin today. The interest rate markets have priced in a 7% chance of a rate hike in October, and a 38% chance in December. MrTopStep has said throughout the year that there will not be an interest rate hike soon, especially now since recent economic reports and earnings have become concerning, to say the least. Furthermore, the global environment is much more challenging for rate hikes given the recent cuts out of China, and the ECB suggesting that more stimulus could be on its way. Particularly of interest yesterday was Whirlpool, which has been seen as a global economic indicator, making comments suggesting that the global situation has been slower than their expectations as Whirlpool stock traded down 11% on Friday.
At the end of the day the Fed desires for the first interest rate hike since 2006 to be a smooth transition that will not alarm the marketplace; therefore, it is not going to raise rates with the expectations so minimal for October. Since September, the constant Fed speak has maintained that the global economic concerns in recent weeks is weighing on their minds when considering a hike; and while volatility has calmed, no one really knows yet how bad things are, or will be in China.
While the FOMC release may not be unpredictable, the language used should be of interest, and the markets could respond accordingly. It was at the September meeting’s conclusion that the futures rallied hard after the Fed release, placing the index futures at a multi-week high before selling off the remainder of the month; then in October on the FOMC minutes release, the equity markets rallied higher and extended September’s range, and it was from there that the markets have been able to take it a leg higher. As the end of the year is drawing closer, it is apparent that the markets are paying close attention to, and will react to, the FOMC.
Goldman Sachs on this Week’s FOMC Meeting:
- We do not expect significant changes in the October FOMC statement.
- The statement is likely to acknowledge slower payroll gains while still describing growth as “moderate.”
- We would view such an outcome as indicating that, despite the weaker-than-expected recent data, the leadership’s baseline for liftoff remains December.
- The October meeting is unlikely to resolve questions about recent dovish comments from Governors Brainard and Tarullo.
- Although their comments have been widely interpreted as implying that a hike this year is unlikely, we instead see their remarks as reflecting reasonable and predictable disagreement, and we continue to expect liftoff in December, though only with 60% confidence.
Comments From RBS Concerning this week’s FOMC:
“With no press conference scheduled and no update to the Fed’s projections for growth, inflation, or ‘dots’, the bar was already set fairly high for any change in policy. International developments and domestic data released since the September decision are unlikely to have increased the Fed’s sense of “reasonable confidence” that inflation will rise over time,” RBS argues.
“The fact that the FOMC will release only its post-decision FOMC statement this week severely limits the Fed’s ability to communicate a change in policy outlook. In this sense, less news is good news for the USD – the fewer changes the FOMC makes, the more positive for the USD at the margin.”
In Asia 8 out of 11 markets closed lower (Shanghai Comp. +0.14%), and in Europe 10 out of 12 markets are trading lower (DAX -0.37%). Today’s economic calendar includes day one of the two day FOMC meeting, Durable Good Orders, Redbook, S&P Case-Shiller HPI, PMI Services Flash, Richmond Fed Manufacturing Index and earnings from Apple (AAPL), AFLAC Inc (AFL), Cummins Inc (CMI), Ford Motor Co (F), Pfizer Inc (PFE), Reynolds American Inc (RAI), T-Mobile US Inc (TMUS), TD Ameritrade Holding Corp (AMTD), Twitter Inc (TWTR), United Parcel Service Inc (UPS), Wyndham Worldwide Corp (WYN), & several others.
Apple Down -3% Ahead of Earnings
Our View: The ES was dead in its tracks yesterday, and most of the slowdown was due to the Federal Reserve’s two day meeting. Today Apple (AAPL) reports earnings after the close. Remember the iPhone makes up two thirds of Apple’s revenue. My call is that the earnings come in better than expected. Before AAPL reports we have to get through today’s session first. While I think it will be more active than yesterday, and have a wider range, I don’t anticipate any serious move in either direction. The call is to keep the range in mind, yesterday was an inside day, so going back to Friday’s globex low of 2053.25 and cash session high of 2074.50 could be the extent in either direction we see today. Our View is to fade the early move while keeping in mind the 10 handle rule (learn more about the 10-handle rule here…).
MrTopStep WEBINAR
Please join MrTopStep’s Danny Riley and Rob from Discovery Trading Group for this Saturdays, October 31, 2015, 10:00am CST webinar
MISCONCEPTIONS AND REALITIES OF HIGH FREQUENCY TRADING
SIGN UP NOW!!!
As always; please use protective buy and sell stops when trading futures and options.
- In Asia 8 out of 11 markets closed lower : Shanghai Comp. +0.14%, Hang Seng +0.11%, Nikkei -0.90%
- In Europe 11 out of 12 markets are trading lower : CAC -0.54%, DAX -0.37%, FTSE -0.28% at 7:00am CT
- Fair Value: S&P -6.76 , NASDAQ -9.73 , Dow -83.25
- Total Volume: 1.18mil ESZ and 3.6k SPZ
[s_static_display]
No responses yet