The market basically treaded water again yesterday, on low volume and a tight intraday range. Overnight action was not much different, as Asia closed mixed and Europe is currently flat. SPX futures are indicated up 0.5%, though that was after an almost 0.5% drop right at the close yesterday due to month-end shenanigans
Not much to report in other markets either, as the dollar has traded around unchanged vs. most crosses, Treasury bonds are close to unchanged, commodities too (though crude oil’s weakness yesterday was notable), and everyone waits for the FOMC statement today.
In my view, the most likely course of action from the Fed today will be to extend the pledge to keep rates near 0 until late 2014 by a year, to late 2015. The Fed made this pledge in January of this year. With the market up 10 percent, 10 year bond yields at 1.48%, and intense scrutiny of the Fed, I think Bernanke wants to keep QE in his pocket until the market is in more dire straits. I bet the Fed language in the statement will change though, in a nod to the doves on the committee, by highlighting their willingness to expand the balance sheet in coming meetings (as opposed to just doing more).
After Draghi’s comments last week, I think the ECB meeting on Thursday is actually more important than the Fed today. Remember, the ECB has expanded its balance sheet by much more than the Fed in the past 2 years, and seems in a more aggressive mode right now. As a result, I don’t expect a very strong reaction from markets on the Fed today (at least not as decisive as you would normally expect), as traders are going to want to wait until the ECB tomorrow morning (before the open) before getting aggressive either way.