Equity markets surged immediately following the FOMC meeting but were unable to close near the high as traders took profits into the close. The tone of the market was firm all day as better than expected earning reports from Macy’s and Toll Brothers boosted demand for equities.
Thin trading conditions contributed somewhat to the rally as it seemed no big seller was willing to step in front of the market. Tomorrow will be an important day as trading volume is expected to return closer to normal. It will be interesting to see if investors pick up where the market left off today and attempt to drive it through last week’s highs, or if they break the market in an effort to buy at lower prices.
September Treasury futures backed off of their highs following the release of the FOMC data despite a well received auction. The Fed announced today that it would leave interest rates at near zero while gradually easing its way out of its quantitative easing program. Today’s auction showed steady demand as investors were encouraged to buy because of the attractive yields.
The U.S. Dollar gave back some its gains from its recent rally. Today’s surge in the equity markets seemed to take many foreign currency traders by surprise forcing them to cover shorts in recently bearish markets such as the British Pound, Euro and Canadian Dollar. Tomorrow will be an important day because bullish traders will be looking for a follow-through to the upside in these markets. Today looked like traders had renewed their appetites for risk. Traders will let us know tomorrow if they want risk or if they are returning to traditional fundamentals for direction.
December Gold posted a modest gain in light trading. The weaker Dollar was the driving force behind the mild strength. The Fed offered no support by making inflation a non-event.
September Crude Oil finished up for the day but off its highs. This morning’s rally was triggered by the weaker Dollar and stronger Euro despite an increase in crude supply. Energy traders are facing several issues which could produce a sideways trade. These include a stronger Dollar and increased demand because of the expected economic recovery.
