Ahead of Fed – Its Risk On

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Equities trade higher ahead of fed
Cable powers through 1.2900
Nikkei 0.09% Dax 0.31%
UST 10Y 0.68
Oil $39
Gold $1964/oz
BTCUSD $0919

Asia and the EU

North America Open
USD Retail Sales 8:30
USD FOMC 14:00

Equity markets were mildly higher ahead of the FOMC rate decision later today as traders anticipated the Fed to remain accommodative providing further support for stocks.

Stock index futures were higher by about 50 basis points while high beta FX like EURUSD and GBPUSD were also higher as markets maintained risk on bias going into the meeting.

Analysts anticipate that Fed Chair Powell will have to walk a very fine line by showing encouragement for the economic rebound, reiterating ongoing monetary support but at the same time offering no new stimulus as Fed officials look for growth to return organically.

If there is any bias at all ahead of the Fed it tilts to the dovish side as some analysts expect that the Fed may provide a higher Average Inflation Target rate of perhaps 2.25% signaling that it is willing to tolerate higher price pressures for longer which in turn could prove supportive for stocks as companies will enjoy a low cost of capital for the foreseeable future.

Ahead of FOMC today the market will also get a look at Retail Sales which are expected to rise 1.0% versus 1.9% the month prior. Anything within consensus should provide a further lift to equities as it will continue to confirm the recovery thesis of the bulls. Only a very tepid result – or worse a negative print – could rock the markets lower with data casting doubt on the notion that the US consumer has stopped retrenching.

A sharply negative Retail Sales number will also put the Fed on the defensive and add pressure on Mr. Powell to provide additional stimulus which is he refuses to do could create the perfect conditions for a steep sell-off into the end of the day. However, if the data proves supportive, the risk on flow should hold.

Boris Schlossberg
Managing Director

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