Could a hike make markets spike?

Indices rally regardless of oil weakness, but can they continue to do so faced with a hike? The FOMC commentary is going to be key to ongoing expectations.

Federal Reserve building
Source: Bloomberg

Today has finally seen indices detach from oil prices, as the FTSE rallied in the face of tumbling crude valuations. Despite the release of numerous headline figures from Europe, traders are entirely focused upon events in Washington which will no doubt set the direction of markets for weeks to come.

The time for talking is over at the Fed, as the committee prepare to raise rates for the first time in nine years. With futures pointing towards an 80% chance that we will see rates rise by 25 basis points, it will come as no surprise should the Fed finally act. Given market expectations of a rate hike at the top-end of the likely reality, there seems to be a good chance the Fed will under-hike, causing a relief rally.

The commentary surrounding today’s announcement will be hugely important as this sets out expectations for future hikes. With a notorious dove at the helm, it is highly likely that Yellen will avoid needlessly spooking the markets and instead focus on the fact rates will rise at a relatively gradual and leisurely pace.

IGA, may distribute information/research produced by its respective foreign marketing partners within the IG Group of companies pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the research is distributed in Singapore to a person who is not an Accredited Investor, Expert Investor or an Institutional Investor, IGA accepts legal responsibility for the contents of the report to such persons only to the extent required by law. Singapore recipients should contact IGA at 6390 5118 for matters arising from, or in connection with the information distributed.

This information/research prepared by IGA or IGA Group is intended for general circulation. It does not take into account the specific investment objectives, financial situation or particular needs of any particular person. You should take into account your specific investment objectives, financial situation or particular needs before making a commitment to trade, including seeking advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. In addition to the disclaimer above, the information does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. Any views and opinions expressed may be changed without an update.

See important Research Disclaimer.