Naz Dogs Snubb Govs
Stock index futures screamed their disapproval of the
Federal Reserve Governors failure to cut interest rates, tanking from their
highs of the session following the announcement of the policy decision to close
at milestones. Both the
Nasdaq 100 futures
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at contract lows, with the Naz futures tumbling through two limit-down curb
levels on the way. The strong downside reaction comes despite a Fed policy bias
shift to “ease.”
A tightening bias may, however, have been the most the
market could have hoped for from the Fed Governors in response to the economic
slowdown. The Fed has been striving to become more transparent and more
proactive in telegraphing its upcoming policy objectives and this shift in
policy bias to ease now sets up a rate cut for January while maintaining
a consistency in the Fed’s policy directive communications. Lowering rates
without a shift in policy bias would have been out of character for the more
transparent Fed, even though the central bank has gotten more
economic bang-for-the-buck by surprising the market with its moves in the past
(e.g. during the Long Term Capital Management debacle and Russia crises). Naz
futures closed 193.50 lower at 2415.00, moving through what would have been a
second limit down level (limit curbs are removed during the last hour and 15
minutes of trading). SPs fell 28.50 to 1318.00, and Dow futures sank 95.0 to
10,705.
Natural gas had another wild day, rallying back to close
at a new contract record, up .575 at 9.102. From the Pullback From Highs List,
nat gas shot nearly 13% higher in response to forecasts for more cold
weather in the midsection of the country amid storage levels that stand 20%
below normal. The NY Mercantile
exchange recently increased the margin in natural gas futures. The higher margin
has forced some players to exit the market or to scale back the number of
contracts traded. As a result, thinner trading is exacerbating the volatility in
natural gas. Â
Major currency contacts reversed for a second day–though
not convincingly as the decline in equities and a 52-week low in the Nasdaq
Composite curbed demand for dollars. March dollar index futures
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registered a Turtle Soup Plus One Buy signal yesterday and are continuing more
than .58 higher before settling up .12 at 113.04. Going the other way,
euro FX futures
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finished in the top of today’s range to make up from a gap down loss and close
just four ticks lower at .89680. Â
T-bonds initially fell from highs, as traders scaled back
bets that the Fed would ease their policy bias at today’s FOMC meeting. This was
in line
with Fed Funds futures readings. One of the most accurate
predictors of the Federal Reserve’s policy moves has been the Federal Funds
futures. Yesterday, the Fed Funds futures
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implied a 40% chance that the Fed would lower rates today by 25 basis points. In
today’s Fed Funds trading, these odds dropped that the Fed would lower rates
today, handicapping a
28% to 32% chance of a 25 basis-point rate cut prior to the Fed’s policy
announcement. (To learn how to calculate these
figures for yourself, see Loren Fleckenstein’s article on Forecasting
the Fed With Fed Funds Futures). But
T-bonds
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10-year notes
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of the session as traders bought “safety” on the quick down draft in
equities and index futures.
In the softs, coffee
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seven-year depths, closing at a contract low of 65.05, a loss of .85, to make
good on its Implosion-5 List
reading.Â
March cotton
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closed weakly, down .10, matching a one-month low at 65.00. The weak close and Implosion-5
and Pullback From Lows
lists readings, implies a continuation of the move out of its head-and-shoulders
top pattern.