*Global Wrap: 11/12/2016 (20:30)*
*For SPX-500, more strength may come only sustaining above 2275 for
2345-2390 zone; else will come down.*
*For DOW-Fut, more strength may come only sustaining above 19875 for
20100-20415 & 21400-215775; otherwise it will come down.*
*Now, it’s almost 100% certain that Fed is going to hike rate by 0.25%
on 15^th Dec, market may be already discounted for that. But the real
question is, will it be a “dovish”, “hawkish” or “owlish” hike? *
*Most probably, it will be a “dovish hike” for the time being as Yellen
may wait for actual plan for “Trumponomics” and its implementation
before giving any midyear hike indication around Feb’17 (for June’17 hike).*
Now, it’s almost certain that Fed is going to hike in the Dec’16 meeting
next week in an “annual exercise” since Dec’2015 after so much fumbling
and missing its own dot plots, thus making its own credibility at stake.
But, the real question may be about Fed’s stance this time; will it be a
“dovish” or “hawkish” or even an “owlish” hike?
As par FFR indication, market may be also expecting at least two hikes
in 2017 (June & Dec’17) @0.25% each by Fed at this point of time.
But till Trump’s actual plan for the fiscal spending package & funding
mode and its subsequent approval by the US Cong, Yellen may not comment
too much about any probable June’17 rate hike and she may be neither too
hawkish or dovish on 15^th Dec presser, rather than she may take the
script of an “owlish” central banker i.e. always watchful.
Market may take it as an indication of a long pause by Fed, before any
real action in June’17. Also for the 2017 dot plots, if Fed feel that
the Trump’s election rhetoric about $1 tln fiscal spending and other
measures, such as cut in US corporate & personal taxes are really
coming, then Fed has to “telegraph” the market well in advance for a
probable June & Dec’17 rate hikes @0.25% each and for that market may
began to discount the same from Feb’17, after Trump take charge of the
White House on 21^st Jan’2017.
Some section of the market is also talking about 3-4 hikes in 2017 by
Fed for the “Trumpflation” factor and to ensure that US rate does not
fall behind the curve.
But, in reality the current perception of the “Trumponomics” may be just
a verbal jawboning till now as Trump will take charge of the Oval office
only in late Jan’17 and it may not be so easy for election rhetoric to
turn into an immediate action.
Although, “President Trump” may try to keep at least half of the
rhetoric of “Candidate Trump” including the trade protection & ‘America
First” concept and the “Trumponomics”, it will be very gradual and in a
measured manner, considering various reality of the global geo-politics
and also US politics.
Keeping in mind this “reality”, Fed may opt for two rate hikes in 2017
@0.25% and may also do the same in 2018 under Yellen. Thus, by 2018, Fed
rate may be increased by at least 1.25% including the Dec’16 rate hike
of 0.25%, which may translate a FFR of 1.625% from the present level of
0.375% (0.25-0.50%).
After 2018, when terms of Yellen ends (?), Fed may go for more rapid
rate hikes, specially by then real “Trumpflation” may be in place,
thanks to “Trumponomics”. In that scenario, Fed under a new “hawkish”
Chair elected by Trump or even by Yellen (if she will continue for
another term to keep in balance) may opt for at least 3 hikes in a year
(if not 4) @0.25% or even by an occasional 0.50% to take the FFR towards
3.125% (3.00-3.25%) by 2020. Fed’s rate hike will depend upon the actual
US CPI & employment trajectory, keeping in mind about “costly oil”.
Although, overall US economic data may be above comfort zone for the
Fed, too much strength in USD may be also bad for US exports and
partially for its economy and corporate earnings. Also, there may be
various geo-political & banking risks, especially in EU and China
jitters. There may be also significant US political risk itself and the
US credit scenario may not be so bright on the back of higher
delinquencies in retail loans (home/auto/student) and corporates are not
confident enough for fresh investments. As of now, for the last few
years, most of the US corporates are primarily busy in their “own shares
buyback” to utilize the “idle cash” in the book, rather than expanding
or diversifying.
There may be significant US political risks this time as “Trump” is not
a matured political leader, although he may be a great corporate leader,
giving so much attention to all the finer details of his housing project
(micro manager). Also, with the current conspiracy theory of a Russian
involvement on the US election & politics may turn into a serious issue
in the coming days and Trump may be termed as a “Russian Puppet”. After
all, America will not approve for a “Russian Puppet”, even if he has an
ultra nationalistic agenda.
All these may kept Fed for a “dovish” or “owlish” hike this time without
any definitive forward guidance for future rate hike paths till at least
Feb’17 and US bond yields/USD/SPX-500 may fall by some extent after Fed
next week as “Trump Trade” may fade. But at the same time, divergent
monetary policy between Fed & ECB/BOJ and other G-10 economies may limit
the fall of USD.
*As there may be divergence in the technicals & the underlying
fundamentals (news flow or events), one may look at the technicals for a
light position ahead of Fed as time & price is the ultimate, despite all
the confusions.*
*SPX-500 Fut:*
*LTP: 2261*
*Has to close consecutively (at least 3-5 days) over 2265-2275 area for
further rally towards 2290-2315* & 2345*-2390 zone; otherwise SPX may
fall towards 2250-2230* zone and sustain below that may further fall to
2210-2190* & 2160-2120* area in the near term.*
*DJ-30 Fut: *
*LTP: 19645*
**
*Has to sustain above 19675-19875* area for more strength towards
20100*-20235 & 20415*-20750 And 21400*-21575 zone; else DF may fall
towards 19540-19480 area and sustaining below that, it may further fall
to 19250-19000* & 18700-18490* and 18190-17790* zone in the near term.*
It’s very rare for a positive co-relation between US stock market & USD,
despite steepening of bond yield curve for long (2% spread between
yields of 3MTSB/bill & 10YTSY/bond, supporting the EQ). The spread may
be an expectation of improving economic activity in the coming months in
US backed by higher growth & inflation. But, eventually “Trumponomics”
may also lead to stagflation of higher inflation and stagnant/lower
growth in the US economy. Also, the whole plan of incremental fiscal
spending by Trump may be too much dependent of easy monetary policy of
ECB & BOJ any deviation from there may be also a headwind for the
required funding for Trump’s fiscal spending plan.
Moreover, a strong USD for a long time may not be good for US as well as
the global economy.
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--
Thanks & Regards,
Asis Ghosh
asisghosh.blogspot.com
--
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