As I ALWAYS warn before an F_O_M_C event, "BEWARE the knee jerk reaction", sometimes it is turned around in minutes, sometimes days, but the initial reaction usually is not what the market finally settles on.
As with every F_O_M_C meeting, the market is waiting to hear the term, "Quantitative Easing" or QE3, yesterday's US macro data didn't help their cause sending gold down a bit, although gold is up %50 an oz. since Draghi said last week that the ECB would do whatever it takes to save the Euro. The US Housing data also wasn't helpful, now we have 4 months of increasing housing prices which makes QE3 harder to justify, especially at a time when the F_E_D could be accused of playing politics. Speaking of politics, the "Fiscal Cliff" is only 5 months away, if Congress takes no action, the US economy could drop like a stone, that has to be playing in to F_E_D thinking as well.
As for the ECB, yesterday German Finance Minister, Schauble said to a newspaper,“The rules of the European Stability Mechanism don’t foresee a banking license to allow refinancing at the European Central Bank”
Also moving the European markets were comments from the ECB's Weidmann saying, "Governments overestimate ECB possibilities", until it was realized that the comments were a month old and Draghi only changed his views dramatically last week.
The market also saw some volatility after talk that there was a $4bn asset re-allocation from fixed income in to equities.
As for macro data, the UK's PMI Manufacturing saw a sharp decline. Global PMI also released shows the global print in contraction led by Europe with 10 of 11 countries now in contraction. Globally of 23 countries to report, 16 are in contraction, as noted most of that stems from Europe so far, but the one I was most interested in given commodity volatility early yesterday was China's overnight read. China's PMI dropped to its lowest print in 8 months at 50.1 (consensus 50.5), the devil in the details were that 10 of 11 sub-indicies are now in contraction including new orders and employment.
HSBC's Flash China PMI also came out and smoothed the volatility as it beat, coming in at 49.3 which is contraction (below 50), but up from last month, the HSBC and official Chinese data have been at odds for months, but are finally starting to close in on each other. Given China's opaque nature, I'm more inclined to trust HSBC's read.
UBS also released a report today entitled, "Don't hold your breath for another stimulus in China".
" While the Chinese government has been very concerned about the economic slowdown and has taken policies to support growth, we would not be holding our breath for another big stimulus. The previous stimulus in 2008-09 did lift growth much higher than otherwise would have been, but the excessive credit expansion also worsened the imbalance in the economy and left serious negative consequences which are still been dealt with today. Chinese government has clearly recognized this and is keen to avoid making a similar mistake this time."
The report went on to say China will still try to foster growth, just not via stimulus.
I'm not even going to cover the US ADP payroll data beat as they have a horrible track record.
Today is certainly all about the F_E_D, I'm not sure I would put too much emphasis on price action until the announcement, depending on what the committee decides, tomorrow will be crucial with the ECB's announcement, if Draghi falls short, watch out below is the general consensus.
If one thing we absolutely nailed is clear as daylight now, it's the North/South divide in Europe, I just didn't foresee the ECB stepping in to the fray in such a big way as they have been nearly totally missing from the picture for the last 4 months or so.
As for ES overnight...
So lets see what we can dig out of this market going in to the F_O_M_C statement.
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