Since interest rates were cut to zero as of Dec'16th 2008, many have argued that rates would never be raised again. Wednesday, Dec'16th 2015, will see Zero Interest Rate Policy (ZIRP) come to an end, with the first interest rate change in seven full years. For many traders... it will be a rather novel experience.
Fed int' rate, with sp'500, 20yr
US 10yr yield, monthly
sp'weekly1b
Summary
First, it is important to recognise that the Fed fund rate has never technically been at zero. The actual aim since the last rate cut of Dec 16th 2008 was for a target range of 0-25bps.
So, if rates are raised tomorrow, the 'range' will be dropped, and instead, rates will once more be stated as a simple percentage.
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As for equities.. it would seem we have a key low of sp'1993, with the 2100s viable within the immediate term. Price structure could be argued is a giant multi-week bull flag. If correct, it would be suggestive of a straight run to the 2200/300s by late spring/early summer 2016.
I realise some of you will roll your eyes at that, but if it is a bull flag, we'll break >2134, and keep clawing broadly higher into April/May.
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Looking ahead
EIA report, housing starts, indust' prod', PMI manu'
The FOMC are set to announce at 2pm. There will be a Yellen press conf' around 2.30pm, and that will likely last a full hour.
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Best guess for Fed day
-an interest rate increase of 10bps, aka.. 0.1%, to a level of 0.1%
-A somewhat dovish (easy/loose money) policy statement, one that will again threaten 'any measures necessary' to ensure the two remits of the fed are met.
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If I am correct about the smaller than expected rate increase, the market would likely rally on it straight away.
Further, the market would then build multi-month gains, on the realisation that even if the FOMC increase rates at 10bps at each meeting in 2016, we'll not see 1% rates until spring 2017. The market would almost certainly soar.
Goodnight from London
