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Market Essentials - Market Decides on QE3 > Fed Not So Sure!

Last updated 7/17/2012 7:42 PM EST (GMT -5) 0 Comments - Add your comment

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Andrew Taylor

Market Strategist, GFT

Follow @ATaylor_GFT

Overnight markets saw mixed results early on with a clear upward swing towards the end of the day. The catalyst for such directional indecision was Chairman Bernanke’s testimony and the Q&A session that followed.

US Watch

Going into the testimony markets found decent support on expectations that the Fed will signal that they are closer to QE3 than what the market had priced in. Once the testimony delivered the same rhetoric resurfaced ‘the Fed are ready to act where appropriate’. Hopes of advancements were dashed and risk assets sold aggressively. The Q&A session that followed gave traders cause to pick apart every word of Bernanke’s to find in favour (shock horror!) that the Fed were in fact looking at a range of possibilities of more Easing, this in turn saw risk assets retrace losses and in some cases post gains.

This retracement however saw a distinct overshoot on equities relative to the rest of the risk asset class. If traders were buying on the hopes of further QE3 then Gold would be the main beneficiary and the yard stick in which to compare. Gold& #8217;s retracement was much less than that of equities which mean that either stocks were overbought or Gold needs to catch up. If I was a betting man my thoughts are that overzealous equity traders got a little carried away even when you account for the upbeat overnight US Corporate Earnings.

Commodity Watch

In other news, Oil remains elevated around $89 with the current global Central Bank easing policies its main contributor, escalating tensions between Iran and the West have also see the geopolitical play push the price higher.

Outlook

Today the BoJ will release its Monetary Policy Meeting Minutes today which we gained an insight to on decision day so reactions to news that are already known should be minimal. Australia will release its Westpac Leading Index data which is a read on economic activity. Although not a market dominator it could provide further support for a market that is looking for reasons to buy.

Asian markets can expect to open higher today with the flow on from the positive end to the US trading day. Caution should be adhered to on moves lower once the euphoria of the perceived bringing forward of Quantative Easing (which is just around the corner apparently!) wear off.

Economic Events to watch:

2350 JP            Jun Bank of Japan Monetary Policy Meeting Minutes

0030 AU          May Westpac Indexes of Economic Activity

For more intraday analysis and trade ideas, follow me on twitter @ATaylor_GFT

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About The Author

Andrew Taylor's financial markets career started in 1991 in the interbank FX market,where he worked for one of the largest banks in Australia. Andrew then went on to trade on behalf of some of the biggest global banks, working across five of the world's major financial hubs: Sydney, New York, Singapore, Auckland, and Tokyo.

His more than 20 years of experience spans market borders and asset classes, covering global equities, commodities, options and futures. Andrew's wealth of trading experience and ability to communicate with traders of all levels has put him in demand as a first point of contact for clients and the media alike when seeking information and guidance.