Attention Shifts To FOMC Minutes Following Equity Sell-Off

With the sell-off over the last 24 hours now behind us, investors can look forward to the next two big events that are likely to dominate the markets in the coming weeks, the Fed and earnings season.

The stance of the Fed is always a major talking point for the markets, particularly when we appear to be approaching a change in monetary policy and even more so when it’s the first rate hike since June 2006.

Later on today we’ll get the release of the FOMC minutes from the September meeting and people are going to look very closely at these for signs that the Fed is becoming more hawkish and could bring forward its first rate hike.

The dot plots that we saw after the last meeting, along with the fact that we now have two dissenting members of the Fed – Charles Plosser and Richard Fisher – suggests certain members, at least, are becoming more hawkish. However, there are still plenty of dovish policy makers including Chairwoman Janet Yellen, who is widely viewed as one of the most dovish of the group.

This is why the message coming from the Fed continues to promise these low interest rates for a considerable amount of time, but that can only continue for so long. At some point this will need to be dropped from the statement and there has been a lot of speculation recently that the time has come.

Some expected this to happen at the September meeting but instead we may have to settle for clues in the minutes that it will be dropped in the coming months. If that comes this year, people may be forced to bring forward their hike expectations from the middle of next year, which is when many expect the first hike to come.

Alcoa unofficially kicks of corporate earnings season after the closing bell today, which could for the next month or so turn people’s attention away from economic data and even central banks to an extent, and towards company reports. People have been clinging to anything central bank related recently simply because there hasn’t been much else to focus on and even though the first hikes from the Fed and BoE aren’t expected for another six months at least.

Earnings season should provide great insight into both how companies performed in the third quarter and how confident they are in the economic recovery. For a long time, investors have focused primarily on earnings growth, regardless of how it was driven, which has enabled stocks to continue to rally even at a time when economies were not performing well and central banks were being forced to provide extraordinary support.

Now, economies are recovering and investors may be less inclined to accept austerity driven earnings growth, bringing revenue growth back into focus. We need to see organic growth if this recovery is going to be sustainable, not to mention evidence that companies are investing and confident in the economic outlook.

Ahead of the opening bell on Wall Street, the S&P 500 is seen unchanged at 1,935, the Dow 30 up 1 point at 16,720 and the NASDAQ Composite up 2 points at 3,960.

DISCLAIMER: Any views or opinions presented are solely those of the author and do not necessarily represent those of Alpari (UK) Limited, unless otherwise specifically stated. This content does not constitute investment advice.