The Asian session saw any markets that were linked as beneficiaries of easing fall away today as markets pulled back expectations to match the realities of whether the Fed would unveil easing measures. Early weakness clues given in the US session were also compounded by growing fears that China would get worse before it got better.
Markets have priced in too much optimism of late which has seen traders finally question the likelihood of Central Banks delivering on what the market had led itself to believe would happen.
Most traders would agree that the bond buying initiative by the ECB should eventually see the light of day but not without the all clear from the German Constitutional Court on the 12th September and not without either Spain or Italy signing away its sovereignty for a full bailout. That attaches an element of time-risk that needs to be accounted for.
The likelihood that the Fed would want to mess with the current improving pockets of their economy by printing money and sapping any of the optimism that they are currently experiencing is very minimal.
So we are left with a meeting that will see more of the same from both camps. This means that the recent overshoot needs to be adjusted and is why we will see a continued softness over the next session or two. However, trader psychology is a strange thing and if past ‘pivotal’ meetings are anything to go by we should see a rally on those same markets a day or two out as the fear of missing out should this meeting be ‘THE ONE’ is just too much for one to resist.
GFT Markets currently see the FTSE down 20pts to 5756; the DAX down 40pts to 7007 and the CAC down 21pts to 3441 on Yesterday’s close.
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