Balancing ahead of turmoil

This time next week we will finally know for sure if the US Federal Reserve has indeed raised rates from near zero for the first time in 9 years.  Not since the end of QE has there been a more anticipated announcement.  The market has been fixated on any utterance from Fed members and data that may direct them, as they maintain their ‘data dependent’ proviso at all times.  Friday night’s better than expected NFP employment numbers (which as usual we will dissect in tomorrow’s Weekly Wrap podcast – hint… they are not good behind the headline) almost cemented the rise next week in most people’s minds.  Along with the commodities rout (it in itself partly due to the inflationary effect of the USD via the anticipated rate rise) this has all weighed on gold and silver.  We have reported previously here and here that this historically is a fallacy.

What adds weight to this is the rate rise will happen DESPITE the data, which in real terms is overwhelmingly weak in the US specifically, but even worse when you consider the global situation as we touched on yesterday.  Last night we saw more of this in the US sense with the inventory to sales ratio hitting another recessionary high and the USD dropping sharply.

Our bet is the Fed will implement the paltry 0.25% rise but provide very dovish (accommodative) commentary with it – probably along the lines of ‘this will be the only rise for some time’.  However the move will take $800b of liquidity out of a market hooked on it at a time of weakness and apply more pressure on already struggling Emerging Markets/Economies.  It could be an incredibly interesting few months ahead of us.  Whether it is good interesting or bad interesting could come down to whether you have your wealth balanced beforehand.