Spread Betting Markets Gain Ahead of Federal Reserve Rate Decision
Spread Betting 1 August 2012
All eyes will be on the US Federal Reserve tonight as they announce their latest interest rate decision.
There is an expectation in the markets that if they donít start another round of stimulus now they will give a clear signal that something is planned in the near future. Most likely in September when they meet again.
The rationale behind pumping more money into the system in order to keep the economy growing is simple enough. The US economy is slowing and itís slowing at a worryingly quick pace.
To see your GDP fall from over 4% half a year ago, halving in the following quarter and then dropping off to a mere 1.5% in the last quarter is enough to concern any central banker whoís responsible for employment and growth.
Alarm bells are ringing even more than usual with US growth rate below the 2% mark. For the US it has historically been the case that a drop below 2% is the point of no return and a recession is soon to follow.
Itís the vicious circle where growth slows, business confidence fades, investment plans are scaled back, hiring is curtailed and consumers cut back their spending.
The only thing that the US economy has got going for it at the moment is that a recession was averted last year when growth slowed to 1.2%. And thereís every chance it could be avoided again.
The labour market has been improving just enough and confidence, as evidenced by yesterdayís consumer data, is providing the support for the economy.
Nevertheless the US is in a very precarious position and if there was any shock, yes you guessed it - Europe - the US could quickly find itself back in a recession.
Itís the Eurozone that remains a huge threat to the US economy and global growth as a whole. The ECB needs to make the first move, the Fed can then assess the European actions before taking their own.
Tonight is likely to prove disappointing for all those who are expecting QE3 which is why weíve seen the Dow Jones Futures's rally of the past few weeks fizzle out in the last couple of sessions.
Last night the Dow lost 60 points to close just above the 13,000 level, which at least for some is technical triumph for the index.
This morning European indices are flat-to-positive and itís likely that we will see traders sit on their hands until later this evening. However ahead of the Fedís announcement, thereís a raft of economic data due out.
To start with thereís UK and EU manufacturing PMI data. The US follows this later with their monthly ADP private payroll number which is expected to show over 100k new jobs added in July.
It was the potentially positive US ADP payroll number that seemed to be the sentiment yesterday which pushed the euro 45 points higher to $1.2298.
Of course, it remains to be seen how long the euroís bounce will last. This is particularly true on the European front, if it turns out to be just another central bank meeting with a lot to argue for but not many agreements at the end.
The recent rally in the gold market, supported by speculation that US and European central bankers will restart the printing press, lost steam yesterday.
As we approach D-Day, it has become less obvious they will act so the demand for the metal as an alternative asset was hurt. Overall gold lost $8 to $1,614 for the day. This morning the gold futures market stands at $1,618.
Despite a surprise rise in US consumer confidence, energy investors took the safe route and squared their long positions.
It might have been that commodities investors expected a delay in the Fed adopting new stimulus measures especially when the non farm payrolls are due out on Friday.
Either that or today could reveal another bearish report regarding crude oilís weekly inventories. All-in-all the US crude oil futures retraced $1.61 to $88.06 per barrel.
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'Spread Betting Markets Gain Ahead of Federal Reserve Rate Decision' edited by SD, updated 01-Aug-12
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