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What to expect from Ben and the FOMC?

Despite the ECB having made good on its promise to tackle the Euro-zone debt crisis by widening its bond-buying program to include paper from Spain and Italy, the move so far is not enough to allay investors deep concerns, as seen by another night of uncertainty. From a neutral stance, ECB’s actions are seen as a temporary relief measure for banks which are saddled with sovereign debt. Investors seek proactive solutions, and not reactionary measures.

Stateside, investors have so far tried unsuccessfully to deal with last weekend’s hangover. Now its up to the authorities. Today we get the FOMC decision. The market expects Ben to announce creative steps towards further monetary accommodation. Will he? The very least, market anticipates maturity extensions of the Fed’s current treasury holdings, creating no changes to the Fed’s balance sheet, but should translate into increased downward pressure on the long end of the yield curve. Investors expect the Fed to modify its ‘extended period’ language, to signal that monetary conditions will remain accommodative even longer. Last Friday’s NFP release probably reduced the immediate expectations of implementing QE3. However, investors are hesitant to buy the dollar this morning given the risk of more QE.

Markets will be expecting a moderate relief rally if the above predictions come true. Sustained improvement is unlikely without European authorities keeping their foot on the gas. The problem, the ECB, as the last line of defense, cannot ‘walk alone’ while being undermined by internal political strife. Their direct actions are breaching a key treaty in the Euro’s founding treaty and undermines its credibility. Where is this coordinated effort?

The US$ is weaker in the O/N trading session. Currently, it is lower against 13 of the 16 most actively traded currencies in a ‘violent’ session.

Great roundup of what’s happening in the markets – but take care everything is moving so fast.