The word “meme” was coined by Richard Dawkins in his 1976 book The Selfish Gene, as an attempt to explain the way cultural information spreads. Internet memes are a subset of this general meme concept specific to the culture and environment of the Internet. In 2013 Dawkins characterized an Internet meme as being a meme deliberately altered by human creativity…
For months us traders have had to suffer a mountain of articles discussing “the taper”, many will recall how in this column we’ve referred to the subject as a meme. Readers will now know why we’ve used this reference. The idea of this supposed Fed taper didn’t originate from the FOMC meetings, or an individual in the Fed, it was a completely false construct created by the mainstream financial media such as; Bloomberg, Reuters Dow Jones and the F.T.
No matter how many times we referenced the target of 6.5% unemployment, that Ben Bernake was using as his goal to reduce the monetary easing programme, we were, for the most part, a lone voice. And we take no satisfaction of being right on this matter for one simple reason; the amount of traders that will have traded this news and found themselves completely the wrong side of the market in an incredibly fast moving trading environment.
If you’re a trend trader then life should feel good as there is no way you should have have been caught the wrong side of this trade, particularly if you follow our incredibly simple trend trading advice/predictions delivered at the start of each week. However, if you were a day trader, taken in by the Internet chatter that the “taper was on” – the only question that remained was by how much, then you have every right to feel bruised by today’s spectacular price action immediately after the FOMC announced a continuation of their current asset purchase scheme.
But there’s a valuable lesson to learn and ironically it’s a point we’ve made in one of our short videos that will be released soon. The video is titled; “ten key points for pro traders” and one point mentions never paying attention to any rumours, particularly those that gather steam on the Internet. Trade the reaction to the news, trade policy decisions, trade facts, ignore Internet chatter.
The news from the FOMC came far too late in the day to affect European markets given that they were already closed for the day, however, the majority of indices made positive gains on Wednesday, STOXX closed up 0.62%, FTSE closed down 0.17%, the CAC up 0.60%, the DAX up 0.45%, the Athens exchange closed up 0.09% and the Istanbul exchange closed down 0.16%.
The DJIA closed up at 15676, whilst the SPX closed up 1.22% at 1725 and the NASDAQ closed up 1.01%. ICE WTI oil was up 2.51% on the day at $108.07 per barrel, NYMEX natural up 0.48% at $3.73 per therm. COMEX gold was up a stunning 4.12% on the day at $1361.50 per ounce, only outdone by silver up 6.59% on the day at $22.96 per ounce.
Looking towards the equity index futures the prediction is that European markets will open up given the activity witnessed on the USA markets. CAC is up 0.58%, DAX 0.50 and the STOXX equity index future is up 0.45% at the time of writing.
The U.S. Dollar Index decreased 1.1 percent to 1,008.28 in the New York session, touching the lowest closing level since Feb 20th. The greenback slipped 1.2 percent to $1.3521 per euro, reaching the weakest level since Feb 7th, and fell 1.2 percent to 97.94 yen. The dollar declined to an almost seven-month low as the Federal Reserve refrained from reducing its $85 billion in monthly bond purchases.
The dollar has gained 1.8 percent this year among the 10 developed-nation currencies tracked by Bloomberg’s Correlation-Weighted Indices. The euro rose 4.7 percent while the yen lost 11.1 percent.
The loonie ended 0.7 percent higher at C$1.0220 per U.S. dollar in Toronto after touching C$1.0202, the strongest level seen since June 19th. One loonie buys 97.85 U.S. cents. Canada’s dollar rose to a three-month high after the U.S. Federal Reserve refrained from reducing the $85 billion pace of monthly bond purchases, they’ll keep pumping money into the economy in order to boost growth.
Fundamental policy decisions and high impact news events for September 20th
BOJ governor Kuroda speaks in the overnight session, the subject matter will be inflation control and asset purchases given that, similar to the USA Fed, the BOJ are committed to a fairly open ended purchase scheme.
The Swiss announce their monetary policy assessment and their Libor rate expected to remain at 0.25%. UK retail sales are revealed and the expectation is for a rise of 0.4% from the 1.1% increase in the previous month. The UK’s CBI will reveal their industrial orders expectation with the expectation of a print of 2 versus the previous month’s zero reading.
USA unemployment claims are revealed, the expectation is that a return to the normal range of circa 332K, versus the rogue print of 292K of last week due to two states’ computer systems being off grid.
Existing home sales in the USA are expected to fall moderately to 5.27million from 5.32million the previous month, whilst the Philly Fed manufacturing index is predicted to register 10.2 from last month’s figure of 9.3.