Markets Quietly Await Fed Amid Lots of News

Markets Quietly Await Fed Amid Lots of News

Central banks on three continents will meet, governments will release economic data, the Netherlands will elect a new government, and crude oil will struggle to stay above $48 a barrel. Also, while UK PM Theresa May seeks to leave the EU, Scotland is looking at leaving the UK. All this week.

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A lot is happening in many markets worldwide, but you might not be able to tell from the price action. US stocks, for example, sat virtually unchanged by midday Monday. The S&P 500 index (Nadex US 500) traded in a six-point range. Similarly, the DAX (Germany 30), Stoxx, and Nikkei (Japan 225) all moved less than 0.5%. 

Quiet days are not unusual in any market, but with the range of political and economic events facing investors, one might expect one of those developments to trigger some kind of rally or selloff. As of this writing, Monday isn't over, but it's increasingly clear that the one event markets are waiting on is the one least likely to surprise: the Fed's rate decision on Wednesday. 

But first, the other news. The Bank of Japan is expected to keep its rates unchanged on Thursday. So are the central banks of England, Switzerland, and Indonesia. The British Pound (Nadex GBP/USD) rose for the second day in a row but analysts still see uncertainty ahead. 

Prime Minister May is seeking clearance to trigger Article 50 of the Lisbon Treaty, which governs exits from the European Union, but wants the House of Commons to remove amendments added by the upper house of Parliament. It's a test of her power and comes just when another crisis threatens from the North. Scotland, which was always pro-EU, is threatening to hold another independence referendum in 2018. The loss of Scotland's economic engine would be a blow to a post-Brexit UK, especially with the US pursuing an "America First" agenda. 

EU solidarity faces another test across the Channel as the Netherlands holds its election. Right-wing candidate Geert Wilders poses a strong populist challenge to the leading Liberal party and is expected to come in second, if it doesn't win an upset. The euro was little changed. 

Economic numbers in the US, Europe, and even China are showing signs of improvement. The Fed's recent signals put a stamp of approval on the trends in inflation and employment in the US. With all that good news, investors are maintaining stocks just below recent record highs. When the G-20 finance ministers meet in Germany this week, they are more likely to exchange congratulations than they were in past gatherings. 

The one major market in something close to freefall is crude oil. OPEC members appear to be sticking to their agreement to cut production in an effort to prop up prices. However, OPEC's tightening is offset by the United States, which is the world's biggest oil producer now and which is taking a page from Saudi Arabia's playbook of a couple years ago. US oil stocks are near record levels and yet, US shale and other producers are pumping into the glut. 

We may see more of this holding pattern until the FOMC announces its decision. The reason for their hesitation may not be uncertainty about what Fed will decide, but the simple mechanics of buying and selling. No one wants to buy until they are sure that others are also buying and helping to drive the price up. And no one will want to sell for the same basic reason: you sell high in order to buy back at a lower price. But if others aren't joining in to create the selloff, you're stuck short in a market that isn't descending.

Sideways markets like that can be an advantage for short-term traders looking not for big trends, but rather movements above or below a strike price, as with binary options, or within a defined price range, as with Nadex spreads

What's funny about all this talk about investor sentiment is that it's most likely trading algorithms that will do the bulk of the order placement once the markets break out. Those algos are programmed to look for significant, consecutive moves with substantial volume before they execute their buy or sell orders. They are not going to stick their necks out, but will wait for the trend to establish itself before they act. After all, they're only human. 

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