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S&P 500 Four-Month Low Leads Risk Aversion, FOMC Decision Ahead

S&P 500 Four-Month Low Leads Risk Aversion, FOMC Decision Ahead

2016-11-02 03:25:00
John Kicklighter, Chief Strategist
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Talking Points:

  • The S&P 500 slide spreads to all corners of 'risk' as political anxiety builds
  • Both the RBA and BoJ hold their policy bearings, contributing to Aussie stumble and Yen advance
  • A FOMC rate decision ahead will draw a lot of interest, but headlines will outpace market impact

See the DailyFX Analysts' 4Q forecasts for the Dollar, Euro, Pound, Equities and Gold in the DailyFX Trading Guides page.

When push comes to shove, a committed change in sentiment overrides all other considerations in the market. The S&P 500's extended drop to four-month lows this past session drew the interest of the confidence monitors; but the trouble runs deeper than just this benchmark. Risk aversion moves from FX-oriented assets, emerging markets, volatility measures across assets and especially the high-yield fixed income segment; speak to a breadth of anxiety. A broad application of fear is far more likely to establish a trend than an abrupt move in any individual, high-profile benchmark.

To better gauge staying power in this sentiment dive, we have to assess whether it was the motivation of a catalyst or sourced in conviction itself. This past session offered a range of data - from RBA and BoJ rate decisions to US and China PMIs - but they proved either neutral or supportive of the economic backdrop. That suggests this arises from a place far more elemental and thereby imposes a greater threat to complacency. Meanwhile, events like the hold from the Australian and Japanese central banks will cater to more subtle themes that can actually act as additional tributaries to a more powerful theme.

Looking ahead to the next 24 hour session, the listings are once again significant. The FOMC rate decision will play to the fears and skepticism of the investing masses. That said, it is highly unlikely (16 percent Fed Funds futures probability) that the central bank tests sentiment with anxiety already on the rise a week before the US Presidential election. In contrast to the BoJ and RBA before it however, the Fed's decision will still offer fodder for speculation surrounding the December 14th meeting (70 percent market probability). Is there enough friction in this event to contribute to flailing sentiment? We talk about the current volatility and trends in unfolding in the market's in today's Trading Video.

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