Stocks are indicated to start today’s session modestly in the red following a mixed session on Monday. The tentativeness reflects policy uncertainty about the Fed meeting that gets underway today, and expectations about the blockbuster Alibaba IPO on Friday.
The post-meeting FOMC statement tomorrow afternoon will be accompanied by the committee members’ economic forecasts and followed by the Chairwoman’s press conference. The key point of interest for market participants is to handicap whether the committee will tip its hand towards the timing of the first interest rate hike, with mid-2015 as the likely starting point according to consensus expectations. With the QE program on track to end next month, this has emerged as the key source of uncertainty for global markets, particularly following the steadily improving tone of recent economic data.
I strongly feel that the Fed would like to provide clarity on the path of monetary policy to anchor expectations in the post-QE world. And the most logical way for them to do that is to drop the reference to ‘considerable time’ in tomorrow’s post-meeting statement. There will be two more FOMC meetings this year after this one – October 28-29 and December 16-17. The October meeting, when the QE program will end, won’t have the Chairwoman’s press conference while the December one will be similar to the September meeting in that it will.
I am of the view that the FOMC would like to assure investors that they aren’t on some pre-set timetable and that monetary policy will reflect incoming economic data. The Chairwoman’s presser gives them an excellent avenue through which to communicate with the markets and frame post-QE expectations.
The Alibaba phenomenon is generally considered for the loss of momentum in the Nasdaq market, with the massive IPO believed to sucking the oxygen from other stocks in general and the tech world in particular. At the top of the new IPO price range, Alibaba would be raising almost $22 billion from the market. I am skeptical of this all-encompassing ‘substitution’ theory, though some negative effect on peers like Amazon (AMZN), eBay (EBAY) and others would make sense. In any case, this is undoubtedly a big deal for the market.
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