Home > Uncategorized > Brief Update: 2010/02/19: Fed Hike More Symbolism than Substance, Yet Meaningful for Broader Market Trends

Brief Update: 2010/02/19: Fed Hike More Symbolism than Substance, Yet Meaningful for Broader Market Trends

As noted in yesterday’s TrendView GENERAL UPDATE (http://bit.ly/cM1NNu), stagflation is back with a vengeance, and (however well telegraphed) the Fed had to “do something” prior to today’s US CPI numbers in the wake of the much stronger than expected US PPI. In fact, yesterday’s move is the macro cycle mirror image of the action they were forced to take back on Thursday, August 16, 2007. Having been too sanguine about the implications of interbank market dysfunction, the Fed put through the emergency Discount Rate to 0.50% that evening. However, instead of being a well-planned and heavily telegraphed move, that was in response to a sharp equities slide, as our macro view indicated might be the case, expressed in a CNBC interview at the top of that week (http://bit.ly/13QfSv.) 

▪ However, there may be a sequential pattern here which needs to be fulfilled if the fixed income market is to bottom out in the near term, which may require it selloff into lower supports first if equity markets shake off this morning’s weakish economic releases. Those included mixed Euro-zone February Advanced Purchasing Manager Indices and weak UK January Retail Sales.  Those important supports are DJIA 10,230, March S&P 500 future 1,090 and March NASDAQ 100 future 1,780. Unless they are backed below those levels we suspect they will push back up to challenge the important interim resistances that the March S&P 500 future approached yesterday at the 1,110 level, and March NASDAQ 100 future hit at the 1825 level. Any stabilization and return to even modest strength from the overnight levels in equities will weigh on fixed income.

In that case, it will only evolve over the next couple of weeks that the implications of those higher rates hurt equities and put a bottom in fixed income. And that would not likely be until March T-note into the mid-low 116-00 area if it remains below 117-10 in the near term, similarly into 112.50 for the March Gilt if it remains below 114.15, and the 122.00 area for the March Bund if it cracks in its 122.70 support.

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