US inflation would dictate Fed's action ahead, Markets seeing a santa rally already?

Nick Batsford, CEO of Tip TV, was joined by Zak Mir, technical analyst for Zak’s Traders Café, and Bill Hubard, Chief Economist for Bullion Capital, to discuss the FOMC meeting yesterday and the chances of a Fed hike in December, as well as a look at the direction in which the major Indices are going.

Markets priced-in December, Fed as a “live event”

Batsford highlighted Elliott, who commented that the Fed noted that the economy ‘has been expanding at a moderate pace’ and that it would be ‘appropriate to raise the target range for the federal funds rate when it has seen some further improvement in the labour market and is reasonably confident that inflation will move back to its 2% objective over the medium term’. Mir noted that the FOMC last night wrong-footed the market, and he added that the Federal Reserve have had to back track from September as they were wrong to prevent the interest rate hike based on China, which is now seeing better economic data. He continued that even if the Fed was going to hike in December, firstly it would be data dependent, and US data is currently poor, plus it would be so small that it would have little effect on the markets. On the other hand, Hubard believed that the US would experience an interest rate hike in December and again in March 2016, but beyond that they would halt as the Fed can’t be seen to be political during the election year. He also noted that US data is important for a US hike, and Hubard highlighted inflation as key. Batsford outlined FX Street, and they commented that the FOMC were not hawkish and they are still data dependent. They continued that the rate hike probability after the FOMC meeting increased to 42.60% from 30.50% before the meeting, and the March 2016 saw rate hike bets jump from 57.30% before to 67% after.

Index Outlook

Batsford outlined the S&P 500 which respected support at 2050 and is headed for a test of the previous high at 2130 on the back of strong earnings performance. Mir added that the Index has made a monkey out of the bears, and he noted that the S&P 500 will keep going up.

Mir commented that Germany’s DAX is testing resistance at 11000, with breakout above the descending trend line would suggest another test of the previous high at 12400.

Batsford finished on the FTSE 100, and highlighted that it is also testing resistance at 6500, with breakout above the descending trend line suggesting another test of the previous high at 7100. Reversal below 6250 is unlikely, but would warn of another test of primary support at 6000.

Watch the video to see more analysis on the DIJA, the Shanghai Composite, the Hang Seng, the Nikkei 225 and the VIX.