European markets and US futures are trading lower as traders are showing disappointment in the Fed’s ability to please the market. Last night, the Federal Reserve delivered on its promise; it cut the interest rate by 25 basis points. But the discontent for the markets was in Jerome Powell’s (the Fed chairman) message which clearly gave a strong signal that only moderate rate cuts are likely to take place from here onwards.

Split In Opinions

Confusion breeds contempt, this term has a lot to do what is going on in the markets today. We saw some grave split of opinions among the Federal Reserve committee yesterday. There was strong opposition on both sides: hawkish and dovish. Some pushed against the rate cut, Kansas City Fed and Boston’s Fed, while others strongly backed for a deeper rate cut. The St Louis Fed, James Bullard, asked for 50 basis points rate cut.

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The Aftermath Of Fed

Today’s market action is mainly about the aftermath of the Fed’s reaction. It seems like no one has a clue what to make of it. One thing is pretty much clear that the positive momentum from the US markets wasn’t sustainable as the Asian markets were subdued- gave up their early gains.

Choppiness is the keyword when we see markets today because the dollar index and Treasury yields have been whipsawing. Traders are also asking questions if the PBOC and the BOJ could possibly follow the same dovish path. The BOJ’s governor, Kuroda, has said today that “he is more inclined to it easy now than at last meeting”. This means central banks around the globe are on the same wavelength when it comes to monetary policy decisions.

Are The Record Highs Still On Cards

The bigger question is if we are going to see another record high for the major benchmark indices such as the S&P 500 index which was down 1% before the Fed’s decision and then climbed back, and still up nearly 20% year-to-date. Today’s market action says those record highs may not be that easily achievable because there is a disappointment among investors in terms of Fed- the policy is not ultra dovish.

One way to gauge the possibility of record highs is to keep a close eye on the price action of the S&P 500 index and see where it closes by the end of this week. If we see bullish momentum picking up steam, then the probabilities are in favour of record highs. However, if the consolidation continues then it means the aftermath of Fed has left investors more confused than ever and equities are likely to move lower


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