Rightyo – I am loving the Fed at the moment and their experiment with absolute transparency and the fact that they are trying so hard to let the market know what they are doing and even when they might do it.
Obviously the above has to come with a personal hubris alert lest I blow myself and my dear readers up but I truly think the Fed is doing a great job and I am now convinced we are but a couple of months away from the taper. This notion was reinforced by comments on Friday where the Fed rounded back to the key point of this communication strategy which is of course to get the market ready for the taper but all the while explaining that they still have the flexibility to increase purchases if needed and they are not raising rates anytime soon.
Anyway on Friday the USD caught a very nice bid and stocks were lower after comments from Fed Governor Jeremy Stein who said:
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The best approach is for the committee to be clear that in making a decision in, say, September, it will give primary weight to the large stock of news that has accumulated since the inception of the program and will not be unduly influenced by whatever data releases arrive in the few weeks before the meeting…
He also said that if the economy weakened the pace of the taper will be slowed or stopped but he gave every impression that we are but two months or so away from the taper. Fed Governor Lacker also echoed these comments
At the close the Dow was down 115 points or 0.76%, the S&P 500 fell 0.45% to 1606 and the Nasdaq managed to creep just back into the black.
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In terms of the price action on my VantageFX MT4 chart you can see that the price of the S&P is back in what seems to be this pivotal mid 1590’s region. I’m happy to be short S&P now.
One reason I am is that I believe that the lack of inflation around the globe at the moment even with all of the money printing speaks loudly of a lack of underlying demand in the global economy and thus I expect over time and given we are less than 5% off all time highs stocks to retrace lower under the weight of poor earnings results.