Financial Spread Betting and More US Stimulus
Today is Ben Bernanke's big day. With such a build up to the FOMC meeting, any lack of stimulus measures will probably be taken badly by the market.
The general consensus is that he will use this meeting to announce something to help the US economy, and a great deal has been priced in by both equities
and commodity markets
The suggestions that additional monetary policy will be provided soon have been pretty consistent over the past couple of months. The most recent signals were in the minutes from the August FOMC meeting and then at the Jackson Hole symposium.
The question for investors though is just how far will he go?
Until now, the Fed's guidance of near-zero interest rates have moved from 2013 to late 2014, and so expectations are for a least a move of this into 2015. It will be interesting to see whether, in a year's time, this date is pushed back even further.
Many have a sneaking suspicion that it will, and that record low interest rates are here for a long time to come. However, the markets have also built in expectations that the Fed will do more than just that, but will also launch further QE measures.
Call it QE3, QE2b or Operation Reverse Twist, there are hopes being pinned on the possibility of more asset purchases, whether they be in the form of mortgage backed securities or treasuries. The other key decision is whether the purchases will be limited or unlimited.
Overall though, one can only speculate as to what they will do, and this is exactly what market participants have been doing for months. The bottom line, however, is that investors are expecting some kind of easing from the Fed later today.
In addition, the Fed is also likely to reduce its growth forecasts again, which were last reduced in June, and this is exactly why the market expects to see some action.
The other big question is how will the financial spread betting markets react? If investors get more than they anticipated, then we could see a squeeze higher. However, we could just as easily see a case of 'buy the rumour, sell the fact' as everything is already priced in.
Whatever happens at 19:00 London time, there's likely to be more volatility than we've been used to over the summer months.
The information and comments provided herein under no circumstances are to be considered an offer or solicitation to invest and nothing herein should be construed as investment advice. The information provided is believed to be accurate at the date the information is produced.
By Simon Denham, 13 September 2012