Photographer: Andrew Harrer/Bloomberg

Charting the Markets: The World Awaits the Fed

While equity markets are loving the dealmakers.

After much anticipation, today the world will learn if the Fed is going to raise rates or not, as most traders and economists think. It’s day two of the Federal Reserve’s two-day meeting on interest rates and at 2 p.m. Washington we’ll get the word. Fed chair Janet Yellen will speak 30 minutes later.

A narrow majority of economists think the Fed will keep rates on hold. Traders seem more certain the Fed won’t act. The probability of a rate hike stands at just 34 percent, according to futures contracts.

Ahead of the decision, the Shanghai Composite closed down just over 2.1 percent after spending most of the day higher. The Hang Seng finished down 0.5 percent. European stocks opened up marginally but have been fluctuating ever since.

In a Bloomberg survey, 54 of 113 analysts contacted are predicting some kind of increase. But if you look at Fed Funds contracts over the next six months themselves, where hedge funds and traders speculate on the Fed rate, you get even more insight. The Fed is currently lending money to banks at 14 basis points on average. That’s pretty close to the middle of the 0 to 25 basis-point range the Fed is targeting. You’ve got to go all the way to the February contract before you see traders think the Fed will be lending at 38 basis points. That’s significant because that’s half way between what would be a new range between 25 and 50 basis points if the Fed hikes rates.

Ray Dalio, the founder of the world's largest hedge fund, Bridgewater Associates, said "I don't see the reason for it."

Ahead of the Fed’s decision, the Swiss National Bank kept its deposit rate at minus 0.75 percent. Wednesday, Bank of England Governor Mark Carney told members of the British parliament he’d have to consider raising rates in early 2016 if the economy kept gathering steam.

Equity markets are awarding dealmakers, up to a point. Anheuser-Busch InBev gained 6 percent yesterday on word it plans a blockbuster bid for SABMiller. Altice shares jumped as much as 13 percent - the most on record - at the open of trading after the billionaire Patrick Drahi’s European cable operator said it had agreed to acquire Cablevision Systems. Altice shares then gave up most of those gains.

The $17.7 billion deal will create the fourth-largest cable provider in the U.S. It also sent Cablevision’s stock up as much as 18 percent in after-hours trading. 

After a surge of almost  8 percent at one point yesterday and opening higher, oil fluctuated early today in London before heading south. And if you were looking to the Fed to give the oil price some direction, don't bother. Over the last decade, oil prices and the dollar have moved in opposite directions. But the 120-day correlation between West Texas Intermediate futures and the U.S. Dollar Index moved near zero last week, according to data compiled by Bloomberg. 

 

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