The Fed Has Spoken

ESU3 1 Minute 100713Hi, Friends. Well, that’s out of the way, and there was a decent move in response to wording in the FOMC minutes for June to the effect that many voting members wanted to see further improvement in the employment situation before beginning to “taper” the quantitative easing program. I haven’t read the full document, but the tone appears to be bullish for both bonds and stocks. The Fed will continue to buy large quantities of government securities and mortgage-backed bonds, keeping interest rates lower than they would otherwise be. This is bullish for stocks; lower interest rates tend to make stocks attractive relative to bonds, particularly those stocks with good dividend yields. 

Just a reminder that Fed Chair Bernanke will be speaking in Cambridge at 4:10 EDT today. There will be a Q&A session, so he has the opportunity to comment on the FOMC’s current thinking and on the response to the minutes, should he choose to do so.

By the way, I was reluctant to use the method Todd teaches as the “First Half Hour Breakout” to trade this announcement, as I was afraid that it would take traders too long to decide what the key elements were, resulting in whipsaw action that could make the process too painful for me. In the event, buying the breakout would have been a brilliant trade. There are no do-overs in trading (and there’s no crying in baseball or trading), but there will be other opportunities. 

Here’s hoping that the day is proceeding well; best of luck!

 ESU3 3 Minute 100713b

P.S. The first headlines out on Bloomberg made it appear that there was a clear consensus at the June meeting for waiting to withdraw QE until the unemployment situation showed further improvement. The minutes are actually (as is usually the case) more nuanced, and shows only that there is no clear consensus on the current FOMC as to how to proceed. That might argue in favor of the status quo, but then again, perhaps not. Bernanke’s speech this evening thus becomes more important, as he will have the opportunity to clarify the current view (or views) of the FOMC. The initial positive price action in both equity futures and bonds has reversed, although the net damage isn’t all that significant. There doesn’t appear to be much upside momentum at the moment, however. 

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