Stock Market Trading: 20 December 2013
Whilst the post-FOMC rally still has some momentum, European indices are only expected to see a muted move higher on the open.
You'd think that, with such a large source of uncertainty now removed, the markets would have breathed a bigger sigh of relief.
However, now that the Fed has proven that it has the volition to actually taper, we could see even more trepidation and caution ahead of each FOMC meeting.
The modest trimming of the bond purchases won't have a significant impact on the economy, but we'll have to wait and see how the markets deal with the realisation that the tide is finally receding on extraordinarily loose monetary policy.
The Dow Jones edged higher yesterday, hitting a new all-time high of 16,196 as investor sentiment remained highly optimistic.
So much so, that some slightly disappointing US economic data regarding jobless claims and home sales was easily disregarded.
In addition, overnight trading
has already seen the Dow Jones pushing above the 16,200 level.
Stock Market Trading: 19 December 2013
Following last night's FOMC decision to begin tapering, European stock markets are set to open significantly higher today.
Bernanke once again wrong footed consensus and the markets had a mad scramble to make sense of it all.
Making its first move to taper, the Fed announced plans to cut its QE package from $85 billion per month to $75 billion.
In the US, the immediate response was to sell stocks as traders feared that the punch bowl was about to be taken away.
However, a more bullish perspective erupted moments later, propelling some of the major US indices up to new all-time highs.
The Dow Jones
rose sharply to a fresh record high of 16,182 and even managed to hold on to most of the gains, closing 306 points up for the day.
As is often the case, the hindsight geniuses are coming out with all sorts of reasons as to why world equity markets
are defying the pre-FOMC logic and rallying.
The most common excuse is that the Fed are still doing 88% of what they were previously and that the commitment to low rates goes some way to offset the taper.
However, now that the tapering ball is rolling, let's see how bullish US markets will be with the inevitable rising of bond yields and a strengthening dollar.
Stock Market Trading: 18 December 2013
This morning, European equities are set to edge slightly higher on the open.
Although some pundits will put this down to traders speculating that there will be no tapering, it's probably no more than some short-squaring ahead of the FOMC meeting.
The major European indices
have lost a fair amount of ground since putting in their annual highs so it's only prudent that the bears book some profits before an event which could potentially catapult stocks back into new territory.
Having said that, even if there is no taper, it won't necessarily be a green light for the bulls.
Given that this will be Bernanke's last ever press conference, we expect him to have at least prepared a 'finale' type speech with regards to quantitative easing.
Considering that it was he who instigated such extraordinary monetary policy on the western world, it should only be fitting that he spells out how it should end.
It wouldn't really help his legacy to take a stage left and dump the biggest issue in financial markets on Janet Yellen's lap, so even if tapering doesn't start today, we expect to get a lot of clarity on when he thinks it will.
Amid a choppy trading session, the Dow Jones lost 23 points to close at 15,857 yesterday as economic data showed inflation in check below the 2% target.
While employment, manufacturing and retail sales all point to a pick up for next year, the outlook for inflation may invite cautious in scaling back the stimulus.
Stock Market Trading: 17 December 2013
Depending on whom you ask, yesterday's short squeeze or aggressive bargain hunting certainly took markets by surprise, however, neither the bulls nor the bears want to claim victory just yet.
A mixed batch of data across the globe left traders scratching their heads as to whether good news is now, finally, good or whether the weak data is a harbinger of further easy monetary policy.
It seems increasingly unlikely that European indices will see new highs before the year is out, but the unpredictability and uncertainty of the FOMC, and the market's subsequent reaction, will keep all scenarios on the table for the next few days.
The US industrial production figures showed a bigger than expected rise yesterday, spurring renewed demand for American equities.
As a result, the Dow Jones recovered 131 points to 15,881 after last week's steep sell off.
Importantly, Federal Reserve officials will begin their two day policy meeting later on today.
Whilst the number of investors predicting that tapering will start in December has doubled over the last month, they are still outnumbered by those expecting action next year.
Stock Market Trading: 16 December 2013
This is it; Bernanke's last FOMC
meeting at the helm.
There's a huge amount of data to digest this week, but ultimately the taper on/off scenario will be the dominant theme and is likely to be the catalyst behind any big moves.
Whilst I'm sure there will be a farewell party for Bernanke with lots of alcohol, hilarious monetary policy anecdotes and party poppers, traders will be more concerned about whether or not he stops the music at the equity market party.
Most European indices had notched up decent double digit gains for the year until last week, where the idea of a Fed taper in December took on a lot more prominence and encouraged profit taking.
It seems that some traders have been stewing over the weekend and come to the conclusion that they shouldn't risk a solid year of gains so close to the Christmas lull; they may as well lock in profits and sit back until next year.
Unfortunately, this kind of thinking has led to the herd turning quite bearish this morning and we are expecting sizable losses on the open.
The Dow Jones rebounded 31 points to 15,758 on Friday, largely on position squaring ahead of the weekend.
However, the US index still posted a rather steep drop for the week, with its short-term outlook turning to the downside.