EmailThe Federal Reserve will make a policy announcement around 12:30 ET today. That will be followed by Fed economic forecasts at 2:00 and a Fed Chairman Bernanke press conference at 2:15. Those events will drive market action today.
There is little doubt that expectations of further Fed liquidity actions have supported the stock market in recent days. There is widespread expectation that the Fed will continue Operation Twist. That involves extending the maturity of the Fed's bond portfolio by buying longer-dated issues in place of shorter-term issues. That's not a big deal and it is hard to see how attempting to drive the government 10-year note yield lower than 1.65% will make much difference.
There are some hopes but presumably little expectation that the Fed will announce another round of large open market purchases of bonds (quantitative easing). At least that is what surveys of market participants suggest. Market action has implied otherwise. There is also a lot of talk this morning of disappointment after the Fed's announcements because of the recent rally, even though no action is supposedly expected. Contrarian thought on this one quickly becomes convoluted. It is by no means clear what is built into market prices.
The only reasonably certain outcome is that market action this afternoon will be volatile.
So much for the digression. Back to Europe. Spanish bonds are below 7% again but the government had to pay over 5% to sell one-year paper. That should be of greater concern than the 10-year yield as it signals near-term market anxiety. The Wall Street Journal is reporting that the Greek Socialist party has said a deal has been reached for a coalition government. European stocks are, overall, slightly higher.
The market is likely to go into a holding pattern ahead of the Fed announcement this afternoon. Then, it will all depend on what the Fed says.
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