General / Inter Market Analysis
Thankfully, we can see that the markets have reacted quite favorably to the meetings. Of course, this is understandable. The US Fed, the world’s most influential financial policy makers, have been active this year in its effort to mitigate the effects of the sub-prime fallout.
We have seen how the Fed has been actively providing liquidity into the financial system in two ways. First, by cutting both the Fed funds rate and the discount rate. And second, by putting up the USD200 billion collateral for mortgage-backed securities in exchange for US treasuries.
The obvious question now is: “what’s next?”
From a high of 5.25% since the start of the subprime crisis, the Fed funds rate has now dropped to 2.25%. This is 1.25% shy of the all time low of the Fed funds level since Greenspan knocked down the rates to 1.00% in 2001-2002.
With the way the markets reacted to cuts in second and third month of the year, I feel it is evident the Fed will not make any major cuts this time. At the most, maybe a 50 basis points cut.
Also, with the Fed nearing historic levels, it is possible there will be no major rate cuts, especially now that crude oil is staying above the US100/bbl range.
From a technical point of view, the Dow is facing a major resistance at the 13,000 to 13,200 levels. Any break of this level is bound to be a major event. A breakout could indicate a rally back to the 13,800 to 14,000 levels. On the other hand, a failure to break the aforementioned major resistance level would suggest a continuation of the current corrective cycle which could see the Dow plowing back to the 12,000 to 12,500 levels. And market watchers know that these levels are the doldrums levels.
At the local equity market, it looks like it is still on a downtrend until we see a convincing break of the 13,000 resistance level in the Dow. Otherwise, we will see local market can retest the 2,650 to 2,700 support level.
|
