The great mass of the American and global financial markets will be said tomorrow, December 19, 2018, at the decision of the FED on the occasion of the 4th and last meeting of the FOMC. This is an exceptional appointment, where is played the fate of major American markets on the subject of the rise of probable interest rates (Hawkish) or the unchanging of it (Neutral). The stakes are big because we are at the end of the year 2018 and we still do not have a Christmas rally; Worse! We're only lowering every day, every week. To the point where we would wonder if we were not already in a bearish market. What should be known, according to my conception and my view of things, is that the FED holds the fate of American indices in his hands, and this will only play a pun, see the intonation of their speech. The main task of the FED since 1987, in a fundamental way, is not to avoid a financial crisis or a stock market crash, but rather to succeed a smooth landing as this happens. That is to say that the FED will instead seek to alleviate the magnitude of a likely financial crisis that is simmering. That is why the meeting of the FOMC of tomorrow, 19 December 2018, is so important and vital. The FED will not only make a decision, but it will also give its prospects for the year 2019. And that's where it gets complicated! So I suggest these three scenarios:
1st scenario: The FED increases as expected interest rates (no surprises)
If the FED increases interest rates as expected, this does not necessarily and systematically mean that the indices will plunge because raising interest rates is also a way to signify optimism about the state of the American economy that Until then, is struggling to regain his cadence of the past quarter. So economic players and market players can be reassuring and therefore can start buying the clues. So we can foresee an unexpected rebound of the very short term see even a few days. The whole will be accompanied by the verbiage of the boss of the FED on his reading of the economy for the next future maturities, for 2019. ATTENTION to the interpretation of the economic actors
2nd scenario: The FED keeps the rates unchanged (still here, not surprised)
In this second case, it will not be surprising for the FED to keep the rates simply, because the American indices have suffered a lot in recent months because of commercial concerns, also on the side of the yield curve of Bond rates (inverse vs. neutral), and finally because the inflationary expectations that are guided by the shape of the oil, have literally mowed down the clues that do not end up as we used to see them in previous years where They took high records. Oil being the dominant factor in global growth and global demand is currently at $45 per barrel; Which is disturbing! But at the same time, its meteoric and amplified decreases are also a way of not thinking about the worst because its decline has been made perhaps a little too quickly. The last support bracket so far is officially $42 a barrel. So a neutral decision of the FED could cause oil to breathe and thus by indirectly the S&P 500, which are the two leaders of the major financial markets. In case of verbiage or evasion words, also accentuated on neutrality, there could be no big surprises or unexpected effects because the FED had already expressed its willingness to opt for a respite in its monetary policy which could therefore so relieve the indices in the very short term and get them to bounce. As is often said on the stock exchange, ' ' no news = good news ' '
3rd and final scenario: the FED lowers rates (shocks either positive or negative)
At the level of this last scenario, it is here that something special will happen because neither the market players nor the FEDS funds foresee such a reversal of the situation. If the FED makes such a decision, it will actually send a strong signal for 2019; So far, it has been more or less optimistic or even neutral for the American economy. Which means that if it lowers interest rates, it could be considered a confession! As an early Mea-Culpa on the state of the economy. As if it would be anticipating already a recession to come! Interest rates are currently at 2.25%. So this does not leave enough margin in case of a collapse of the markets, to support the American economy with easing monetary policy. Which means that this scenario is unlikely. The tone and the verbiage will also be scrutinized by the magnifying glass in this case if it were to be realized. If also the FED lowers the rates with a neutral talk see bullish, this could support the clues in the sense that it might tend to neutrality, see a structural adjustment to the level of its debt in terms of the bond given the situation of Their deficit reaching the peaks.
Conclusion: What we should Remember:
You certainly noticed that every time I used a ' ' if ' ', and I talked a lot about the tone, speech, or verbiage of the FED, which will be very important to follow. The condition ' ' if '' evoke a set of assumptions and circumstances, which means that I do not have a crystal ball to answer by a yes or a no, what the FED will say. However, I do know that the American president, Donald Trump, has let us know that he wants the FED to leave the rates unchanged given the current circumstances of the American economy. This means that scenario 2 is more likely to succeed than the others when we know the interference power of the President of the United States in the internal affairs of the management of the monetary policy of the FED. This will undoubtedly give the transparency, the sovereign, and the credibility of the FED criticized by his boss Jerome Powell. What is shaping our bias for tomorrow to the slowing of a possible increase in the indices in the intraday session. We could even close with the DOJI in a weekly session. Do not forget that we have not yet broken and pressed the last rampart (support) of the S&P 500: 2530 pts
1st scenario: The FED increases as expected interest rates (no surprises)
If the FED increases interest rates as expected, this does not necessarily and systematically mean that the indices will plunge because raising interest rates is also a way to signify optimism about the state of the American economy that Until then, is struggling to regain his cadence of the past quarter. So economic players and market players can be reassuring and therefore can start buying the clues. So we can foresee an unexpected rebound of the very short term see even a few days. The whole will be accompanied by the verbiage of the boss of the FED on his reading of the economy for the next future maturities, for 2019. ATTENTION to the interpretation of the economic actors
2nd scenario: The FED keeps the rates unchanged (still here, not surprised)
In this second case, it will not be surprising for the FED to keep the rates simply, because the American indices have suffered a lot in recent months because of commercial concerns, also on the side of the yield curve of Bond rates (inverse vs. neutral), and finally because the inflationary expectations that are guided by the shape of the oil, have literally mowed down the clues that do not end up as we used to see them in previous years where They took high records. Oil being the dominant factor in global growth and global demand is currently at $45 per barrel; Which is disturbing! But at the same time, its meteoric and amplified decreases are also a way of not thinking about the worst because its decline has been made perhaps a little too quickly. The last support bracket so far is officially $42 a barrel. So a neutral decision of the FED could cause oil to breathe and thus by indirectly the S&P 500, which are the two leaders of the major financial markets. In case of verbiage or evasion words, also accentuated on neutrality, there could be no big surprises or unexpected effects because the FED had already expressed its willingness to opt for a respite in its monetary policy which could therefore so relieve the indices in the very short term and get them to bounce. As is often said on the stock exchange, ' ' no news = good news ' '
3rd and final scenario: the FED lowers rates (shocks either positive or negative)
At the level of this last scenario, it is here that something special will happen because neither the market players nor the FEDS funds foresee such a reversal of the situation. If the FED makes such a decision, it will actually send a strong signal for 2019; So far, it has been more or less optimistic or even neutral for the American economy. Which means that if it lowers interest rates, it could be considered a confession! As an early Mea-Culpa on the state of the economy. As if it would be anticipating already a recession to come! Interest rates are currently at 2.25%. So this does not leave enough margin in case of a collapse of the markets, to support the American economy with easing monetary policy. Which means that this scenario is unlikely. The tone and the verbiage will also be scrutinized by the magnifying glass in this case if it were to be realized. If also the FED lowers the rates with a neutral talk see bullish, this could support the clues in the sense that it might tend to neutrality, see a structural adjustment to the level of its debt in terms of the bond given the situation of Their deficit reaching the peaks.
Conclusion: What we should Remember:
You certainly noticed that every time I used a ' ' if ' ', and I talked a lot about the tone, speech, or verbiage of the FED, which will be very important to follow. The condition ' ' if '' evoke a set of assumptions and circumstances, which means that I do not have a crystal ball to answer by a yes or a no, what the FED will say. However, I do know that the American president, Donald Trump, has let us know that he wants the FED to leave the rates unchanged given the current circumstances of the American economy. This means that scenario 2 is more likely to succeed than the others when we know the interference power of the President of the United States in the internal affairs of the management of the monetary policy of the FED. This will undoubtedly give the transparency, the sovereign, and the credibility of the FED criticized by his boss Jerome Powell. What is shaping our bias for tomorrow to the slowing of a possible increase in the indices in the intraday session. We could even close with the DOJI in a weekly session. Do not forget that we have not yet broken and pressed the last rampart (support) of the S&P 500: 2530 pts
Francois Abley