US shares rally into second day of Fed meetings, oil prices lift, ASX futures 35 points higher

While just under half of Wall St economists expect the US Federal Reserve to lift rates tomorrow morning, the market is pricing in just a 23% chance of that happening. What does that mean? It means that although economist consensus is split, the market is not - so if rates are raised, then markets will get rocky tomorrow. But if the 'market' is right--by that I'm referring to the implied rate forecast by the market-driven US 30-day Fed Fund Futures prices, which is where the 23% comes from--and the official rate remains at 0.25%, then I suspect there will be some buying, depending on whether the statement issued is benign or foreshadows a change to the expectation that the Fed sets based on leading indicators.

But, prima facie, I'm certainly encouraged that the US equity market rallied last night with such a big announcement looming. Today's first chart shows the US S&P 500 butting its head up against selling resistance in the form of a ceiling at 2,000 points - the slightest break above this level would likely precipitate short covering and trigger stop buys for those who believe the market will now recover to pre-August levels.

Last night and yesterday's price action has been supportive of Australian shares and today's second chart shows ASX 200 index futures with a few zones that I've singled out:

  • The August 25 panic zone - we don't want to get back there
  • The 5,000 level danger zone - the higher we are off this level as the Fed makes its announcement, the better
  • The current 5,152 level - 150 points from the danger zone and 419 points from the panic lows of 25 August - things are looking good at this stage

The Aussie dollar is looking very confident that the US won't raise rates, trading this morning at US$0.7180 and maintaining an impressive short-term up-trend. Assuming the US doesn't raise rates tonight, Rivkin's Senior FX Analyst Richard Sexton believes that the recent low just above US$0.69 will remain untested for some time, and this is what he refers to as a 'major low' and has used as a point of reference for bullish analysis since, given there is an absence of logical historical buying support levels. So the message for Aussie dollar traders is definitely that the short-term trend is your friend, but with an explicit caveat that if the US hikes rates tonight then the game has changed. Given the spread widening (where the gap between bids and offers widens dramatically) that will occur in the FX market tomorrow morning during this big event, it's probably wise to stay away from any US dollar linked pair at present and trade the emerging trend AFTER all of the post-announcement trade has settled.

Rivkin Global clients caught a nice upswing in oil markets last night, as US oil inventory data showed a drop and teased out buyers. WTI crude (US Crude in the Rivkin Trader platform) rose by 5.7% overnight - please email customerservice@rivkin.com.au if you'd like to know more about becoming a Rivkin Global client.



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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