Waiting For The Fed
Today’s Comment
Majors & Scandies
The Federal Reserve is today at 7.15 pm announcing the future fed funds target rate. Expectations have been very volatile in the last to weeks and have almost exploded during the last 3-4 days on top of the Bear Stearns’ news and the emergency discount rate cut from the Fed late Sunday evening. The interest rate futures trading at CBOT in Chicago have currently priced in a 100bps - and then some - rate cut… The Fed has a tendency of not disappointing the market and in the rare instances it has done so, it has not been positively received by the market. We do, however, find it unlikely that the policy makers decide to give in to the full expectations of the market and cut rates by that many basis points. Our house view calls for 50bps cut at tonight’s announcement and two additional 50bps cuts by Q3 2008. The current market sentiment is fragile and it may change in an instant. The path chosen by the market after the announcement is highly dependent on the comments following the rate decision. It is likely to be negative for USD and US short term rates whatever the outcome might be
GBP has been under pressure the last few days and it is likely that it going to continue today. Yesterday Bank of England offered GBP5 billion in a fine tuning operation, but was only able to honour 23% of the total amount asked for. The amount of asked for liquidity indicates that the situation in the financial sector in the UK is not all that good either.
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Financial markets calmed down somewhat yesterday evening, and EM currencies regained a tad of what has been lost. Following the losses we have seen during the last week (EUR/ISK has climbed 14 %!), a short-term rebound is bound to happen at some time, but despite this, we stick to our bought positions in EYR/ISK, EUR/TRY and EUR/ZAR (although we have adjusted higher both the target and the stop on the EUR/ISK). There are some things you just shouldn’t do against the wind, and betting on a short-term EM rebound seems to be one of them at the moment. Today’s main events are the FOMC decision and the quarterly reports from Goldman Sachs and Lehman Brothers. As markets are pricing a cut of at least 1 %, the FED does not seem in a position to deliver any positive surprises. As for Goldman and Lehman, markets have been looking for the next victims following the demise of bear Stearns - and the latter in particular is considered a likely candidate. Positive surprises here could turn market sentiment at least for a while.
Today’s key events
- 08:15 Industrial Production, CHF
- 09:00 Retail Sales, CZK
- 10:30 Consumer Prices, GBP
- 12:00 Consumer Prices, CAD
- 13:30 Producer Prices, USD
- 16:15 ECB’s Bini speaks, EUR
- 18:00 ECB’s Mersch speaks, EUR
- 19:15 Rate Announcement FOMC, USD
Jyske Core Positions - Recommendations
Jyske Markets - FX Research
http://www.jyskebank.dk/finansnyt
The analysis is based on information which Jyske Bank finds reliable, but Jyske Bank does not assume any responsibility for the correctness of the material nor for transactions made on the basis of the information or the estimates of the analysis. The estimates and recommendation of the analysis may be changed without notice. The analysis is for personal use of Jyske Bank’s customers and may not be copied.
