A big week for markets as the Fed makes a call on rates, ASX futures up 25 points

One could probably toss a coin right now in order to anticipate how sentiment will emerge this Friday, after the US Federal Reserve announces its September interest rate decision. All the analysis and commentary in the world won't do much good this week, and sentiment won't necessarily be driven by the actual interest rate decision or even the statement that accompanies it. It will be driven by what the herd does - will traders buy or sell the market on Friday morning at 4am (Sydney time) following the release? Well, we obviously don't know that. And as market events go, this is a high-impact and highly-anticipated one - bets latent within US equity markets, interest rate markets and foreign exchange markets will be firing once the outcome is known. So while last Friday's mild 0.5% or so rise in US equity markets was a nice gentle lead for us to start our week of trading, I suspect things might get a little more heated as we move closer to this Friday.

US advance retail sales and inflation data are also due out tomorrow night and Wednesday night, respectively, and they will add to speculation about Friday's decision, because they're all backward-looking (August) figures that will be taken into account for the Fed's two-day discussion, over Wednesday and Thursday, US time.

The positive that I would take out our start to the week is that ASX 200 futures are kicking off at the top of their short-term range rather than being at the bottom, which gives us 200 points of cushioning to chew through before we begin to threaten the 5,000 level. This gives us breathing room going into Friday morning and will allow us to continue to take on risk as we head into the event, at which time we'll decide whether to remove trading positions or not for Rivkin Global members.

For investors, there won't be key fundamental take-outs from this week's decision. People think too much of the US Federal Reserve's resources and insights: its committee members don't know when or where inflation will come from next (which is the key component missing from a 'no-brainer' style rate hike decision); they don't know whether oil and other commodity prices will suddenly bounce higher and fuel the prices of goods and services; and their ability to project the landscape for healthy S&P 500 corporate earnings is likely worse than that of large US investment banks (maybe apart from the earnings of those investment banks engaging in interest rate arbitrage!).

So what do you do with all of this noise? You either maintain a business-as-usual disposition, or you remove exposure to risky assets going into the decision if you don't want to be exposed to the volatility that may (or may not) manifest. Rivkin Local's model portfolio will not treat this week differently to any other--given its long-term performance outlook--and Rivkin Global will trade tactically into the end of the week and see whether the right opportunities arise to trade through the event or avoid it.

But listen despite my emphasis of this event, don't over-think it. I don't know whether this week will be more or less volatile than any other - the market might have spent enough time adjusting recently to bother getting too hung up on the decision when it finally emerges. Today's three charts:

  • ASX 200 futures buoyed by Friday night's positive US session
  • US S&P 500 continuing to consolidate
  • Post-GFC volatility reminding us that it is unlikely that the August noise will disappear quickly and revert to 'normal'

Source: Rivkin, Saxo Bank

To view the Rivkin economic calendar and Global Markets matrix, members can click here.

This article was written by Scott Schuberg, CEO of Rivkin Securities Pty Ltd. Enquiries can be made via info@rivkin.com.au or by phoning +612 8302 3600.

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