I can’t wait for September to end so there are finally some good movies to choose from. Dolphin Tale 2? Too mild. No Good Deed? No way. So how about Honeymoon? Sure no one’s heard of it, and it wasn’t even mentioned in Box Office Mojo’s roundup of the week’s films. But for fans of creepy horror films, it might fit the bill. The flick concerns a just-married couple who take a trip out to the bride’s family cabin, only to have her start acting very strangely after she investigates a strange light. Is it a metaphor for the way you never really know the person you’re marrying? For our fears of commitment? That Steven Spielberg should make a Close Encounters of the Fourth Kind? Who knows? But it stars Game of Thrones‘ Rose Leslie and Penny Dreadful’s Harry Treadway, and is getting remarkably decent reviews: The New York Times’ Jeannette Catsoulis calls Honeymoon “a lean, low-budget debut;” the Los Angeles Times’ Robert Abele says it “delivers a steady dose of newlywed nightmare;” and the Village Voice’s Zachary Wigon notes that it “achieves emotional resonance due to how effectively it joins its source of horror with the stuff of everyday human anxieties.” That works for me.
Speak of everyday anxieties–this week was full of them, despite the fact that almost nothing happened. And the fear was reflected in stocks. The S&P 500 fell 1.1% this week, while the Dow Jones Industrial Average dropped 0.9%. The Nasdaq Composite dipped 0.3% and the small-company Russell 2000 finished down 0.8%.
But really, nothing happened. Sure, jobless claims rose a bit, but not enough to change anyone’s mind about the job market; retail sales rose more than expected, but not enough to change anyone’s mind about the state of consumer spending; and small-business confidence increased in line with expectations. But does any of this impact how Janey Yellen and the rest of the FOMC are going to view monetary policy? I didn’t think so.
So we wait, with bated breath and high anxiety, for Wednesday’s Fed decision. Deutsche Bank’s Alan Ruskin predicts what the Fed will do:
It is very likely the Fed will ditch the 'considerable time' reference, but make their intentions as clear as possible and explain that they wish to align policy with the incoming data and not a reference to time. It is likely that market expectations will largely align behind this view BEFORE the meeting and price it in. Shifting Fed expectations is one important reason why the USD has performed so strongly in recent days and it fits with bond and equity price action. There is certainly a serious danger of a 'buy the rumor sell the (USD) fact' response.
Morgan Stanley’s Vincent Reinhart and team call such a move “risky.” They explain why:
Many market participants would view removal of "considerable" in September as the launch of a mechanical plan to commence policy firming in March, however much the statement emphasizes that decisions are data-dependent and made meeting-by-meeting. Moreover, the more conspiratorial inclined would conclude officials must be very committed to the rate-hike plan to unveil it after a soft employment report. While there is opportunity to correct the misimpression in the press conference, the barn door to tightening fears would be left open for a bit. Fed officials are probably justifiably cautious about an asymmetry of expectations errors: the problem they have—market participants may be more dovish that their
own guidance—is easier to fix than the problem they may create—market participants become more hawkish than their guidance.
Nomura’s Jens Nordvig thinks market volatility is on its way:
The market is waking up from six months of extremely depressed volatility. FX volatility is leading the charge, having spiked substantially higher in the last several days. Meanwhile, volatility in other assets remains fairly subdued, judging from implied volatility in most major interest rate and equity markets. High yield credit markets seem to be at an intermediate stage, with some movement in implied volatility visible.
We see this as the beginning of a potentially larger adjustment, in which the low risk premium currently priced into sovereign yields will be in question and volatility surfaces across many assets will shift away from the very low levels observed during most of 2014 to date.
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As global bond yields find a bottom and the September FOMC meeting approaches, global markets are already starting to reprice expected risk and reward of various assets.
Let’s just hope it’s not a horror show.
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