FOMC raise rates for the first time in nine years

Today is seeing a continuation of yesterday’s rally in global indices, feeding off the back of the FOMC decision to raise rates.

Source: Bloomberg

The fall in volatility, as encompassed by the VIX, was evidence of the fact that this was a perfectly stage-managed event which, despite providing very little for doves to get too excited about, still saw indices rally.

Today marks the beginning of a new phase for the Federal Reserve whose new norm will be about raising rates rather than maintaining them.

It is also a sea change for market participants who will now shift their focus onto pastures new instead of being so transfixed on that first hike which many perceived as the primary market  risk.

There is a tangible feeling that this could mark the beginning of the so-called Santa rally, but fears remain over the impact that a strong dollar will have upon commodities prices and subsequently FTSE valuations.

The typical theory that monetary tightening leads to indices weakness and currency strength appears to be somewhat detached from reality currently, with dollar strength matching the rally in stocks. How long we will see this positive correlation last remains to be seen.

Unfortunately despite the Fed hike being out of the way, we are likely to still see economic data treated inversely, where good data leads to weakness. This was seen in this morning’s UK retail sales figures, with the sharp FTSE selloff following what was stellar batch of economic data showing that Bank of England thinking remains at the forefront of the market mindset.

Ahead of the open, we expect the Dow Jones to start at 17,763, up 14 points from Wednesday’s close.

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.