While quite a bit of attention is being paid to the FOMC's policy statement word count, I'm reminded of Mark Twain's
"It's better to keep your mouth closed and that people think you are a fool Open it and remove all doubt"
For today, perhaps it would be better said, "It is better to keep your mouth closed and let people think what they like rather than open it and remove the market's doubt".
I think there was a very good reason for the low word count and it seems that the talking heads are so wrapped up in the details that they cannot step back and see the bigger picture as well as the continual bias that the Fed has shown which has led me to believe that rate hikes are much closer than the market anticipates. I know we are all supposed to believe that everything is data dependent. However if you owned a large business and we're making plans for a large change, perhaps expansion, perhaps downsizing, I doubt very much it would be on-the-fly. This seems to me to be the kind of thing that you prepare for long in advance and make sure you have the proper structures in place to deal with it. How much more show for the Fed in a move that will affect all businesses via the economy broadly?
Put more plainly I think the decision had been made quite sometime ago but until we get to it the F_E_D will try to maintain an image of the impartiality. This doesn't change the fact that they seem to be much more afraid of the consequences of not hiking rates than the very obvious consequences to the economy of a rate hike, especially in the housing sector which has been extremely in rates.
The bottom line is Q1 GDP missed in a big way at 0.2% versus consensus of 1% and the Q4 previous of 2.2%. I would think this would be an alarming development to a truly data dependent F_E_D. Instead, they dismissed it as transitory conditions which has only one possible translation, rate hikes are absolutely on the table. In fact the Q1 GDP weakness didn't even so much as justify a brief comment suggesting, "PATIENCE". That's all you really need to know, everything else is largely subterfuge.
If you've been with us for a while, then you know we have expected policy tightening since the same day QE3 was launched as the F_E_D first suggested changes that would make it much easier to tighten policy regardless of economic conditions. Then the F_E_D made the actual changes from the suggestions such as the change from qualitative (date based) guidance to quantitative (data based) guidance which sounds reasonable. However they followed that up with the pre-emptive doctrine that allows them to justify policy tightening even when quantitative data does not agree..."So Long as we feel..." XYZ will move in the correct direction.
Now they have created a situation in which they can literally hike rates or further tighten policy no matter what the economic reality is as they have this very ARBITRARY, "So Long as we feel confident the data will move in the right direction over time". Other then the AtlantaF_E_D's GDPNow, when was the last time aF_E_D economic forecast was correct? If they had been, we would've never seen QE2, Operation Twist, Operation Twist Light and QE3!
Try to stand back and look at the bigger economic picture and if you have kept up with F_E_D guidance/yardstick changes, compare both and it is little wonder to me, that we were forecasting the end of quantitative easing on the very same day Q E3 was introduced.
As to the market so far, I find it exceptionally interesting that the weak intraday positive divergences as posted here, Pre-F_O_M_C Update (which I said I suspected were nowhere near strong enough to support anything more than a very short knee-jerk move), are nearly perfect in size to support the price action we have seen Post policy statement.
I also saw this in leading indicators just before the 2 PM policy statement, although only short term:
Tino
We cannot confuse near-term price action with the larger term trend (this is why there is multiple time frame analysis and why our trades should suit the timeframe we are dealing with) which is showing up on high-yield corporate credit as a negative divergence and now at a leading negative divergence. As an institutional risk asset, high-yield credit should move with the market, it is obviously in a risk off position after supporting the April trend and triangle breakouts.
I suggested in today's, $USD Update that we would see a near-term countertrend balance or correction within the larger downtrend.
At the yellow arrows there is a simple, corrective, countertrend bounce. I have recently said and posted in today's $USD update, that I believe we will see another countertrend balance and the catalyst for that would likely be the F_O_M_C.
Please try not to get lost in the lines which can be easy to do in a lateral trending market such as we have seen in 2015 in which we are looking for any indication that the market is about to make anymore volatile, especially for those of us that watch the market day in and day out. Remember delivered your trend that was forecast on April 2 as a result of head fake moves about the triangle and is now standing as confirmation of that forecast (as posted earlier)....
As for very near term, you already saw the 3C charts and some of the leading indicators intraday. The daily candlesticks also look supportive for tomorrow.
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