I'll get to Monday in another post. First, this is a post by a trader I respect.
These are his comments relative to Dec 19 and future rate hikes during a discussion about the possibilities.
"WATCH THE YIELD CURVE FOR CLUES ABOUT THE NEXT FED MEETING
Just before the FED raised interest rates in September, Da Boyz allowed 2-10 curve to widen from about 10 basis points out to over 30 bp....
I just noticed that Da Boyz started to do that again today....the 2-10 spread widened to almost 16 bp....only a few days ago, it was under 10!
If the market allows the spread to widen to more than 25 bp, then that might mean the market is willing to let the Fed raise rates...
If somehow the Yield Curve spread doesnt widen much by the Fed announcement on Dec. 19th, then I would take that as an ominous sign and that Mr Market is trying to tell the Fed not to raise rates next week."
A further piece of the discussion.
"I can't fully disagree with your analysis, but I do think the FED may hold off any rate increases in 2019....my belief is that they will raise rates next week by the 25 bips because the FED FUNDS FUTURES have that priced in with about 80% certainty...but I think they will say they are close to neutral and that will imply the possibility of no rates hikes next year....however, they will continue their selling off of mortgage bonds under their Quantitative Tightening program....in a way, that allows the FED to continue to pull liquidity out of the system which has been their goal the last couple years....
As I say, keep an eye on the 2s-10s spread (Yield Curve) for clues....back in September, the bond market players allowed the yield curve to rise sharply right before the FED raised interest rates...that was the bond market's way of signaling the FED that it was okay to raise rates...I have noticed the same phenomenon began the last two days as the Yield Curve drifted higher from 12 bips to 16 bips....and if they will "allow" the FED to raise rates, they will let it drift higher over the early part of next week to around 25 to 30 bips....
If this happens, then that would also mean that the 10 year treasury note yield would rise significantly (or the 2 year yield would drop)....with a rising 10 year yield, that means more weakness for Gold and Silver and a STRONGER DOLLAR as foreign money is attracted to higher yields, especially in a risk off environment.
So, continued strength in the Dollar into the first part of next week up to the FED meeting announcement on Wednesday implies MORE SELLING PRESSURE on equities."
