Markets Could Go Higher, Whatever the Fed Does!

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Good news for market bulls and USD bears: the Federal Reserve's upcoming interest rates decision could go your way, whatever they do.

This is according to a "sneaking suspicion" held by Padhraic Garvey, Regional Head of Research for the Americas at ING Bank.

"We have a sneaking suspicion that we could see a “surprise” reaction higher in market rates to whatever the Fed does. It’s happened before. In fact, it’s running at about 50:50 on the reaction function historically," says Garvey.

The rough textbook guide suggests that a 25bp cut would disappoint a market that is on balance readied for a more foreceful 50bp cut. This would put stocks under pressure and bid the Dollar.

However, a 25bp cut accompanied by guidance that hints at 50bp cuts ahead of year-end could juice stocks and sink the Dollar. Conversely, a 50bp cut with cautious guidance about future cuts could have the opposite effect.

But why does ING's Garvey suspect it could be a win-win for equity bulls? "All of the excitement is ahead of the game. Delivery then brings a sense of new reality to the equation, which can see a tactical adjustment higher as an impact, even if structurally it's no more than a blip as rates ultimately re-test lower in subsequent weeks," he explains.