Fed Day Finally Arrives: First Rate Hike Since 2006?
Is today the day? The first U.S. interest rate hike in nearly a decade?
We’ve been talking about this Federal Reserve meeting outcome for months. It feels like years. The Fed—carrying a bias tilted toward higher, or “normal,” rates while much of the rest of industrialized world maintains easy monetary policy—will wrap up a two-day session with a highly anticipated decision at 2 p.m. Eastern and stocks are generally higher early Wednesday in anticipation of a gentle course of action at the Fed.
At last check, short-term Fed funds futures market traders have priced in a potential 81% chance that the Fed activates the first interest rate hike since 2006 at this meeting, according to pricing calculations provided on the CME Group’s FedWatch Tool.
Not all market participants are convinced that the Fed is ready to move. A December survey conducted by True North Market Insights for TD Ameritrade found that 36% of the 1033 queried men and women investors think the Fed will raise rates today. Clearly less than half.
Buzz on Wall Street hints that Fed inaction could really do a number on sentiment. No rate move now could potentially lead some traders to wonder what the Fed knows about a wobbly economy that the rest of us do not.
Quiet trading is possible heading into the afternoon announcement, likely followed by a spike in high-volume and high-volatility trading, and then a shift to “What’s next?” The Fed does convene again in January. The late week includes the potential added volatility of “quadruple witching”—the expiration of futures and futures options on top of stock and index options.
There’s little occupying Wall Street’s mind outside of the Fed. The only thing coming close? Walt Disney Co (NYSE: DIS) gains early as largely upbeat reviews roll in for the latest in the “Star Wars” franchise.
Housing Starts Jump. Does this report give the Fed some cover to raise rates? Housing starts rose 10.5% in November to a seasonally adjusted annual rate of 1.173 million, government data showed. That’s more than Wall Street’s guess for a 1.14 million rate. Single-family starts rose 7.6%. Housing permits jumped 11% to a pace of 1.289 million, the highest in five months.
Crude Reality? Crude oil prices gave up earlier gains on Wednesday. This market, too, is fixed on the Fed decision. A Fed rate hike would presumably buoy the greenback and make crude imports more expensive for buyers paying with foreign currencies. New York-traded crude was near $36.74 a barrel in early action. London-traded Brent changed hands near $37.53 a barrel. Supply continues to be a driver for this market. According to the API estimate, U.S. crude stockpiles likely grew by 2.3 million barrels for the week ended Dec. 11. The official data by the Energy Information Administration will be issued later Wednesday.
First Solar Boost. Back on earth, there is more going on in Washington than just the Fed. It’s hard to remember that, I know. First Solar, Inc. (NASDAQ: FSLR) shares jumped in pre-market action, with traders giving some credit to Congressional action lifting a ban on oil exports and at the same time extending solar and wind tax credits.
Inclusion of specific security names in this commentary does not constitute a recommendation from TD Ameritrade to buy, sell, or hold.
Market volatility, volume, and system availability may delay account access and trade executions.
Past performance of a security or strategy does not guarantee future results or success.
Options are not suitable for all investors as the special risks inherent to options trading may expose investors to potentially rapid and substantial losses. Options trading subject to TD Ameritrade review and approval. Please read Characteristics and Risks of Standardized Options before investing in options.
Supporting documentation for any claims, comparisons, statistics, or other technical data will be supplied upon request.
The information is not intended to be investment advice or construed as a recommendation or endorsement of any particular investment or investment strategy, and is for illustrative purposes only. Be sure to understand all risks involved with each strategy, including commission costs, before attempting to place any trade. Clients must consider all relevant risk factors, including their own personal financial situations, before trading.
TD Ameritrade, Inc., member FINRA/SIPC. TD Ameritrade is a trademark jointly owned by TD Ameritrade IP Company, Inc. and The Toronto-Dominion Bank. © 2015 TD Ameritrade IP Company, Inc. All rights reserved. Used with permission.
© 2017 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.