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Can a Case be Made if the Committee Does the Inevitable Today, the Markets Will Advance?

Today is the conclusion of the most anticipated FOMC meeting in recent memory.  The constant narrative is 100x worse than a whining two year old.  At some juncture the FOMC will change policy.  It is not a question of if but when.  Can a case be made if the Committee does the inevitable today markets will advance? 

I think many markets have already discounted the inevitable.  Most emerging market currencies have imploded 30% to 40% during the past two years in anticipation of the inevitable “liftoff.”  Many EM equity markets have also been crushed.

Regarding the domestic markets, it appears all markets have been hijacked by the machines.  At first glance one would think equities would get crushed if rates are increased but always anticipate the opposite.  Has algorithms been altered partially predicated upon “sell on rumor and buy on fact? “

Equities advanced yesterday on the strength of oil.  Inventories fell by an amount greater than forecasted.  The narrative is now beginning to change that higher prices will not cause western production to increase because of massive cuts in infrastructure. 

This should not be a surprise even though three months ago the mantra was higher prices will cause supplies to return to the markets, a view that I did not share.  Many times during the previous six months, I noted capital expenditures in the oil sector has plunged by over $180 billion, the greatest decrease since 1986 according to Bloomberg and these reduction will cut production.

At the time of this writing the markets are anticipating a 34% chance of the Fed changing monetary policy.  The world will know around 2:00.

Last night the foreign markets were mixed.  London was down 0.27%, Paris up 0.28% and Frankfurt up 0.37%.  Japan was up 1.43% and Hang Sang down 0.51%.

The Dow should open nervously lower, at this juncture down about 30 points.   The 10 year is up 5/32 to yield 2.28%.

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Ken Engelke

Chief Economic Strategist Managing Director

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