No hike, now what?

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FED, Federal Reserve, Janet Yellen, decisions, Fed Rate, political cartoon
FED, Federal Reserve, Janet Yellen, decisions, Fed Rate, political cartoon

The whole world waited and then there was nothing. Personally I expected some big movements after the announcement. At the announcement, there definitely was some volatility. The SPX rose to a high of 2020.8. However as the press conference continues, more details were given by Fed Chairlady Yellen, the SPX then traded downwards and closed at 1990.2.

The closing price of the SPX got my alarm bells ringing. What is keeping the market from rallying? After watching Yellen’s speech, I came to the conclusion which is “The slowdown on global growth is a major concern of the Fed”. So the continual smooth growth of the American economy might take a hit later down the road. Former Richmond Fed President, Alfred Broaddus said Yellen and Co is very much focused  on how global uncertainty and how it is affecting Fed’s economic goals.

Going on, these are the areas which traders should keep an eye on.

Areas to look at concerning the broader economy:

a) Corporate earning – this will reflect the health of American companies in general. Current quarter earnings is not that encouraging.

b) China’s economy – the world’s factory is sputtering. Recent data’s are showing that the next 12-18 months GDP would be lower than current numbers.

c) Commodity selloff – we have had a commodity bubble bust. Prices have been tumbling. Continual deterioration of prices may suggest the world demand is still weak. Once commodity selling pressure subsides and show strong technical support, things might recover.

Areas to look at concerning US economy.

a) US CPI recorded a -0.1%. A far cry from the targeted 2%. Even Alfred Broaddus noted that this is a major issue which the Fed have to deal with. This is the reason some Economist called the QE a failure as it was not able to lift inflation. So watch out for future CPI data.

b) Lastly it is the Labour Data. It has always been the Fed main info on their economic health. A continual 200,000 print and above should do the trick.

Conclusion:

The Fed is buying some insurance aka time based on current situation and taking heed of IMF Managing Director Christine Lagarde advice to play it safe. A rate hike this year probably in December is still very much on the cards. Monitor closely the areas which is mentioned above to have a wiser decision on your long term trades.