Market Update – September 8, 2015
The Next 10 Days should remain with elevated intra-day volatility across all global equity, currency and commodity based EEM’s. Special notice to Japan, China and Brazil with huge intra-day fluctuations in their equity markets (China & Japan) along with outsized currency volatility (Japan & Brazil).
The FOMC’s wrap up of their September meeting occurs on Thursday, September 17th. Expect the following:
- Nothing as it remains on ZIRP (Zero Interest Rate Policy) with continued opaque emphasis on being “data dependent” yet expecting to move off ZIRP in the coming meetings (October or December).
- 30% chance FOMC moves from ZIRP to “near ZIRP”. This would be done by “lifting” the ZIRP target from 0-25bps to 25-50bps. Fed Fund’s (FF) are currently trading around 15 bps. Possible move to the lower end of the new “near ZIRP” target of 25-50bps with a 1/8 pt. (12.5 bps) increase in the FF rate to approximately 25 bps, or the lower end of the new near ZIRP.
- IF there is any increase in the target FF rate, expect a disclaimer under the banner of “emphasis that the trajectory will NOT be a measured pace of increases, but remain data dependent”. FOMC will likely remain constructive on the US economy, concerned about global currency/equity volatility and belief that the US inflation target of 2% is on track with the current lower levels of inflation only transitory. The FOMC will site the improved job market and potential wage price pressures building. Their employment concerns will come from the vast increase in “new” jobs coming from the service sector and part time employment. They will quietly castigate Congress for their absentee management of the US economy and their dependence on the Fed to do the heavy lifting.
- Commentary about the impending US gov’t shutdown is likely to be mentioned with an admonishment to Congress to avoid such a showdown with the Obama administration. The words will likely fall on deaf Republican ears.
September 17-18th is a Triple Expiration. The biases of these expirations are generally UP. Combined with the FOMC announcement on the 17th will render the SPX especially volatile as traders adjust positions AND close-out large carried positions based on an average Implied Volatility of 30% over the past month.
NASDAQ levels: (current level at 4265)
4290-4300 resistance followed by key area of 4320. A move above 4320, or a close above 4320, should quickly test 4360 and then a possible upside surge to 4431.
4215 support followed by a key support level between 4155-4165. A move below, or close below 4155, might quickly test 4115 with further drops to 4065. Selling pressure below 4065 coupled with the November VX expiration surging above 30 will likely drop the Nasdaq 100 below 3950 within days.