Looking Foward:
The big news for the week is the Federal Reserve Minutes due out on Wednesday afternoon. Wednesday should be a noneventful day up until the minutes are released. This announcement will let us know if the Fed plans to keep rates the same in September or raise them. We expect the Fed to remain steady on interest rates and give us our first raise in 2016 in December.
The Federal Open Market Committee (FOMC) will meet on September 20-21:
- FOMC members are split between leaving the benchmark rate unchanged and increasing it by 0.25%.
- The market consensus is for no rate rise.
- The market consensus is that Fed statement will be slightly hawkish indicating a rate rise in December.
- The main reason the market believes there will not be a rate rise is the upcoming presidential election.
- Fed has the opportunity to raise the rate in September and counter the argument of the Fed being political.
- In the analysis, there is about 30% probability of a rate increase, there is about 60% probability of a very hawkish statement and there is about 65% probability of the market not believing Fed’s hawkish statement. Details as previously described.
- Most money will be made if the consensus is wrong, Fed raises rates and investor who are prepared for alternate scenarios jump on quickly.
Volatility:
After a wild couple of weeks, the VIX settled at 15.37%. The VIX futures remain in contango which is a good sign for the market. VVIX is still above 100% at 102.60%. We should see volatility stay elevated until Wednesday when the Fed speaks about interest rates.
