Market Update: US30 finding support, will the FOMC maintain the fightback?
Hi traders, today we’re looking at the US30 as buyers have started a fightback from support but we have the FOMC to come. Could this unwind the recovery or boost the buying?
The week started with a sharp decline, the Dow saw its worst session since May. Evergrande worry’s hit confidence in Monday’s session driving a global move lower on stock indexes. The debt crunch looks to be a little more settled today as news filtered through Evergrande will meet interest payments. Yesterday risk demand looked back on track but as seen below we saw a strong fade from sellers into the NY session. Today looks positive again as buyers pulled back a push lower by sellers and have turned it into a new rally. This really has once again held from 33,860 support. In the US30 chart below we have marked up the hold so far and we can see this level has some stopping power for now.
Looking forward today, we have the FOMC to come early Thursday morning at 04:00 am. The markets are looking for more details around tapering.
Rick Rieder commented that he thinks November or December for tapering and the Fed could cut back purchases at a pace of $10 billion Treasuries and $5 billion mortgage-backed securities per month, once it starts its taper. It is also thought that they will layout they had a discussion about taping but there might be many details. This will maintain the current trend.
Another key focus will be the Fed outlook for inflation and interest rates. At the June meeting, 2023 was seen as the target for the first changes to the fund rate. Two members suggested 2020. Any surprises here could shock the markets.
“By and large, the tapering is probably not a market-moving event,” Columbia Threadneedle head of multi-asset strategy Anwiti Bahuguna said. She noted the focus Wednesday will be heavily on the forecasts and the Fed’s “dot plot” – CNBC
“If we just see two or three members change their minds that could be a hawkish surprise. There is no chance that [Fed officials] will take the dots off, so the risk is that there are more dots that appear in 2022 and 2023, and the market starts thinking the rate hiking cycle commences next year,” Bahuguna said, noting that would be a “hawkish” message that would be negative for stocks. – CNBC
Could tapering be factored in now? After the initial news, it’s had little impact on stock indexes of late. Evergrande looked to be the key driver early this week. Could a hawkish turn from the FOMC set off a new wave of selling that sets off a new extension lower? Or will we continue to see the path remain steady and buyers continue to build off their latest support hold?