Monday, March 20, 2017

Surprising market response after new Rate Hike 1%

Rate Hike in levels 0.75-1%.

It never ceases to amaze me the reaction of the market to the results of the Rate Hike announced today by the FED. It is not normal that before a Rate Hike the market rises so strong, however it seems to have interpreted a dovish tone in Yellen's message. However, I do not think this is the start of a new rally, but I see it as a new sign of the complacency and emotion of the market. Do not be surprised that in a few days the stock market corrects, because the truth, nothing is going to change much in the US economy with the announcement of the FED.

In summary:
- Yellen estimates that there has been a steady growth in the economy, improvement of the labor market, and therefore inflation towards the desired target of 2%.

- This justifies the rate increase this month, which is given at levels of 0.75-1.00%, that is to say what is expected. And they will be, for the moment, three and not four increases, the total of them in the year. With this, a certain margin is taken in case the previous criteria falter or Trump disturbs the economy with his next fiscal policy, even without detailing. Is this dovish? I see it more realistic.

- The bond portfolio is maintained until the economy shows clearer, that is, until Trump is defined.

- The fact that only 3 rate increases are planned this year, moved the market higher, the SPX +0.84, and the dollar /DX down to levels of -0.8%, its highest annual daily fall .

 It remains for your files, the main indexes closed through their etf, after the FOMC session.

From top to bottom, left to right: SP500, Gold, Russell2000, Oil and Bonds at 20 years, 
all in strong rise, while the sector Finance XLF, which expected 4 rates hikes, fell.

Gold: best commodity for speculation during FOMC decision

As I have already written, I do not trade with futures, but if I follow them daily, because they are the basis of all my analysis. And for that reason, I still think that the best asset to speculate when there are FOMC meetings or declarations from FED members is gold. Yesterday was no exception: it exploded at 1pm when the decisions of the FED were announced, also supported by technical factors that comment on Friday, such as the rebound from the 50% Fibonacci. As soon as the immediate fall of the dollar /DX and the rise of the TLT treasury bonds, were seen, gold became a safe haven. The triple speed etf JNUG went up to 30% in a few hours (!!) with an impressive volume of trades of more than 100M shares !

The Recommended Reading

Continuing with the comments on the gold, its rise today does not necessarily imply the beginning of a rally in the golden metal, you have to be careful here. Review this interesting analysis by Myra Saefong, in Market Watch, about it. She makes reference to the statements of Ross Norman, an executive of Sharps Pixley, who believes that today a short squeeze (immediate cover of shorts when starting to raise gold) could have occurred today, which helped close at + 1.87%.
Gold yesterday rebounded after the announcement of the Fed,
but I recommend caution there, in the short term.