What The Fed Will Do
The most accurate predictor or Federal Reserve interest rate moves in the
days immediately preceding an FOMC meeting is the federal funds futures. The
August contract’s pricing is saying the voting members will target a
for-sure 25-basis-point cut to 3.50% from 3.75%. With a quarter-point cut
expected, Fed watchers will likely look more closely at the accompanying
policy statement to see if the central bank plans to take its foot off the
economic-stimulus peddle.Â
But here again, it has proven more historically accurate to look at
back-month fed funds futures contracts than to rely on ambiguities in the
accompanying statement or pundits or prognosticators. And here the fed funds
pit finished the day indicating there is strong chance the Fed will ease
rates another quarter-point by the end of the year. The October contract
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contract is showing an even surer 84% chance of a 3.25% fed funds target
rate by Christmas.Â
Contracts in early 2002 show that the Fed will end its easing cycle and
will probably raise rates back to 3.5% by next April.Â
Longer-term debt futures came off multi-month or contract highs,
demonstrating they too see the end of the easing cycle. Because of their 20-year-shorter life span, price moves in 10-year futures generally move less
than (30-year) T-bonds due to the impact of time on total interest yields.
Today, 10-years
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fell 16/32 to 104 25, “flattening” slightly the yield curve in
another market indication that the easing cycle should be drawing to a
close.Â
Stock index futures made gains after an early dip into negative
territory in a show of pre-FOMC euphoria that an interest rate cut may help
more interest rate-dependent blue-chip stocks out of their doldrums.Â
Dow futures
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day up 110.0 at 10,365.0, but
Nasdaq 100 futures
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S&P futures
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and handle in the final 15 minutes to close on their highs of the session,
up 10.20 at 1175.70.
Better-than-expected rains over growing states in the Midwest during the
weekend got grains, and especially soybeans, off on the wrong foot. Despite
today’s plunge, November soybeans
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not undercut their early August lows, keeping their bullish bias intact. But the current pattern of more than 25 trading days in a flag
formation without progressing out of the pattern could start to weigh on this market as time
erodes the validity of the flag. Beans lost 16 cents to 486 3/4.
Coffee
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gains from Friday, but found support at the consolidation zone it launched from in the last trading session. Selling, too,
subsided in the pre-launch congestion area, with support at 49.50. Basis
September closed down 4.35 at 50.00.
In a nice move below its lower-level consolidation,
silver
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Turtle Soup Plus One
Sell
pattern, losing 11.2 to 415.3.