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The Sellside Reacts To The First Rate Hike In Years: "It's Calm On The Floor"

Tyler Durden's picture




 

While Yellen still speaks in her historic "first rate hike in years" press conference, the sellside has already shared its kneejerk reaction to the Fed's announcement, and as Citi notes, "It’s calm on the floor considering the first rate hike in years. More attention on WTI crude, which remains 4% lower to 35.80 after DOE inventory build."

More from Citi:

Our Treasury desk notes real money flow in front end with better buying around the 2-year point as its yield briefly popped above 1%. Little seen in the back end.

 

Credit spreads remain tighter by 1-3bp although there are spots of weakness, like some energy names where spreads are +25bp.   “Maybe a touch better now, but tone was firm pre-Fed so can’t really attribute this to Fed,” our tech trader says.

 

Selling was seen in the credit ETFs right after the Fed, took prices off the highs. Lots of action in the options space, trader there says market is moving fast.

 

HY25 is up around 1/2 point, the highs of the day now, nearing 101 as IG moves 1.5bp tighter.  HY25 is well bid.

Here is Goldman:

BOTTOM LINE: The FOMC raised the funds rate to 0.25-0.50%, as widely expected. The post-meeting statement signaled a baseline of further funds rate increases, but expressed caution about inflation developments. The Summary of Economic Projections (SEP) showed an unchanged median funds rate for end-2016; median projections for 2017-18 declined moderately.

 

MAIN POINTS:

 

1. The FOMC raised its target rate for the federal funds rate at today’s meeting to a range of 0.25-0.50%, ending a seven-year period at 0-0.25%. The supplementary “implementation note” announced the following changes: an increase in the interest on excess reserves rate (IOER) to 0.50% (from 0.25%); an increase in the reverse repo (RRP) facility rate to 0.25% (from 0.05%); a removal of the cap on the RRP facility (it will be constrained only by the stock of Treasury securities held by the Fed; previously the Fed capped this program at $300bn); and an increase in the discount rate to 1.00% (from 0.75%).

 

2. The post-meeting statement signaled a baseline of further funds rate increases, but expressed caution about inflation developments. In particular, the statement said: “In light of the current shortfall of inflation from 2 percent, the Committee will carefully monitor actual and expected progress toward its inflation goal. The Committee expects that economic conditions will evolve in a manner that will warrant only gradual increases in the federal funds rate”—stressing the “gradual” message repeated in many public comments by Fed officials. The statement also added that “some” survey-based measures of longer-term inflation expectations “edged down”.

 

3. The statement also noted that the “stance of monetary policy remains accommodative”, even after the increase in the funds rate—a phrase the FOMC also used during the 2004 tightening process. Additionally, the statement said that the runoff of the Fed’s balance sheet is not likely to begin until “normalization of the federal funds rate is well under way”.

 

4. In the Summary of Economic Projections (SEP), participants made few changes to their forecasts for the economy and monetary policy. Fed officials raised their projections for GDP growth moderately for 2016 and lowered their projections for the unemployment rate. However, they also reduced the projection for core PCE inflation to 1.6% for end-2016 from 1.7% previously. The median projection for the funds rate at the end of 2016 was unchanged at 1.375%; the median funds rate projection for the longer run was also unchanged at 3.5%. Median projections for 2017-18 declined moderately.

And UBS:

Give the people what they want?

 

The FOMC met market expectations and hiked rates by 25 basis points, bringing the target range for the Fed funds effective to 25-50 basis points from 0-25 basis points. This move ended seven years of official rates at the zero bound. With the rate hike now behind us the market will shift to focus on three key questions: First, can the Fed make this rate hike "stick" using the tools they currently have. Second, how fast will the Fed keep moving? And, third, what will they do with the enlarged balance sheet?

 

We believe that the Fed will be able to enforce the target range although we expect it will require the Fed to ramp up the use of reverse repos, consistent with the announcement that repos would only be limited by the Fed's Treasury holdings. We expect the Fed to hike rates by 25 basis points per quarter in 2016, in line with the "dot plot" provided by the Fed but still faster than is priced in by futures markets.

 

Data dependent or gradual? Both, if their forecasts are correct.

 

The statement suggested a committee with solidified views: risks are "balanced", instead of "nearly balanced" and inflation is expected to rise "to", not "toward", two percent. Despite this confidence, as we expected, the Fed stressed that further hikes were likely to be gradual but are data dependent.

 

At the same time, they did not lower their already gradual expectations for 2016, keeping 100 basis points of tightening over the year as its median (and modal) rate. That said, there was a skew lower in the 2016 dots, but not one we see as being material given the composition of the voters in 2016.

 

What about the balance sheet?

 

In the near term the Fed will be using reverse repos and interest on reserves to manage the Fed funds target. They did not offer up a schedule for returning the balance sheet to normal via roll-offs or (less likely/more problematic) asset sales. We had anticipated that the Fed would begin to allow roll-offs by mid-year as they continued to normalize policy. However, the statement notes that balance sheet adjustment is unlikely until "normalization of the level of the federal funds rate is well under way." As such, it now seems likely that a sustained balance sheet roll off should not be expected until 2017.

 

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Wed, 12/16/2015 - 16:30 | 6931852 NidStyles
NidStyles's picture

Someone tell me that they don't see the connection between the rate hike and the COP 21 deal...

 

I must be going insane. 

Wed, 12/16/2015 - 16:33 | 6931864 Hitlery_4_Dictator
Hitlery_4_Dictator's picture

Duh, that's because most people are out of stocks. You'd have to be crazy to be involved with this shit show. I'd be selling if I had anything invested in the "market". Too bad I'm poor because of their policies. 

Wed, 12/16/2015 - 16:41 | 6931916 Captain Debtcrash
Captain Debtcrash's picture

The PPT seems to have been working OT because I can’t imagine very many people are buying this “a rate hike is dovish” BS.  This chart tells it all. 

Wed, 12/16/2015 - 16:43 | 6931928 WillyGroper
WillyGroper's picture

Well, since they've bankrupted the coal companies & the maggot Soros is buying them, this makes perfect sense to me.

http://www.dailysabah.com/asia/2015/12/15/japan-s-korea-plan-61-new-coal-plants-in-next-10-years-despite-global-climate-deal

They're doing the same to oil/NG that's going to be an epic squeeze in all energy doled out to the peepsheep before they're done.

Agenda 21/2030

Wed, 12/16/2015 - 16:50 | 6931912 ZerOhead
ZerOhead's picture

No you are not going insane although pretty soon you'll wish that you went insane.

The globalist's Giant Shitshow is now picking up steam... it was the 7 year anniversary of ZIRP after all as "Lucky 7's" LaGarde would have told you...

 

Thu, 12/10/2015 - 19:31 | 6907450 ZerOhead

Vote up!

19
Vote down!

-28

< Hike

< No hike

Brandon Smith says the December 16th rate hike is (almost certainly) on. Since he's the only financial writer who knows the larger game afoot I am inclined to agree...

http://www.alt-market.com/articles/2758-the-global-economic-reset-has-begun

Wed, 12/16/2015 - 16:31 | 6931855 Amateur Society
Amateur Society's picture

Probably calm on the floor because the computers in NJ data centers don't talk

Wed, 12/16/2015 - 16:32 | 6931862 explainstuff
explainstuff's picture

I say buy SPY puts expiring next Friday.

Wed, 12/16/2015 - 16:47 | 6931950 Squid Viscous
Squid Viscous's picture

nothing like opening a box full of turds on Christmaz!

Wed, 12/16/2015 - 17:16 | 6932072 Yen Cross
Yen Cross's picture

That's a good trade. You should hedge it with a small energy or financial sector trade. The risk premium will be lower, so you can hold a larger contact, and be less out of pocket, for your risk premium/exposure.

 

Thu, 12/17/2015 - 12:18 | 6935369 explainstuff
explainstuff's picture

I can only trade naked calls/puts. I can't hedge with selling calls/puts that I don't own :(

Wed, 12/16/2015 - 16:32 | 6931863 Squid-puppets a...
Squid-puppets a-go-go's picture

'course its calm on the floor. the floors been nothing but tumbleweeds since the algos took over

Wed, 12/16/2015 - 16:33 | 6931873 Thisisbullishright
Thisisbullishright's picture

So panic buying across all indexes??

As predicted.  OF COURSE this is how it has to react....

We live in a fucking surreal time!

 

Wed, 12/16/2015 - 16:40 | 6931915 Id fight Gandhi
Id fight Gandhi's picture

It would've been panic buying if no hike either.

 

I'm surprised they did raise them. Must be serious shit coming down the pipe from the credit markets.

 

Wed, 12/16/2015 - 16:33 | 6931875 Youri Carma
Youri Carma's picture

I expect the real significant reaction a bit later when this scheme has fully sunken in: 4 Rate Hikes In 2016.

Wed, 12/16/2015 - 16:37 | 6931890 Bear
Bear's picture

We will get ZERO rate hikes in 2016 and we will be lucky if no QE

Wed, 12/16/2015 - 16:45 | 6931942 Squid Viscous
Squid Viscous's picture

"you'll get NOTHING, and like it!"

Wed, 12/16/2015 - 16:35 | 6931888 wmbz
wmbz's picture

Clear skies ahead, balmy breezes, smooth sailing.  DOW at 20,000 before you know it!

Ain't life grand!

For the masters of the universe.

Wed, 12/16/2015 - 16:36 | 6931891 buzzsaw99
buzzsaw99's picture

WOPR doesn't rattle easily

...the only winning move is not to play

Wed, 12/16/2015 - 16:36 | 6931892 Be_Optimistic
Be_Optimistic's picture

The real move will happen tomorrow. 

Wed, 12/16/2015 - 17:10 | 6932044 nevadan
nevadan's picture

Have you ever noticed that bad things seem to start in Asia?

Wed, 12/16/2015 - 16:36 | 6931895 DukeMakewater
DukeMakewater's picture

No hike=awesome!

Rate hike=awesome!

I'm buying calls on stupid.  We may have a floor here.

Wed, 12/16/2015 - 16:36 | 6931897 Bill of Rights
Bill of Rights's picture

Biggest joke of the day...GOLD.

Wed, 12/16/2015 - 16:37 | 6931903 pebblewriter
pebblewriter's picture

"calm on the floor" = perfect conditions for post-FOMC statement meltup...

Wed, 12/16/2015 - 16:38 | 6931908 Rainman
Rainman's picture

First trader to say bullshit gets a pink slip

Wed, 12/16/2015 - 16:40 | 6931913 Guitarbill
Guitarbill's picture

Rate hikes, terrorist attacks... It does not matter, Mr Algo is running the show. Crude getting stomped with a rate hike and it has no effect. Either buy or don't play, it's fixed my friends.

Wed, 12/16/2015 - 16:44 | 6931933 yellensNIRPles
yellensNIRPles's picture

"Excuse me sir, but we don't do that here. This is a game where you buy-in, but leave all your money on the table when you leave. Yes, right, it belongs to the house now. Next time you come back, bring more money with you or don't come back at all. Do you understand?"

Wed, 12/16/2015 - 19:43 | 6932703 Guitarbill
Guitarbill's picture

I'm not worried Mr Yellen, I own GPRO!! Yippie!

Wed, 12/16/2015 - 16:41 | 6931921 SillySalesmanQu...
SillySalesmanQuestion's picture

Well, I was wrong, they raised rates and the market at the same time...WABOB.
In other news, JPM just announced, that they will not raise their deposit rates, in conjunction with the FED's rate hike....Fuck you Jamie you prick!

Wed, 12/16/2015 - 17:03 | 6932012 LooseLee
LooseLee's picture

...but' they'll be raising the prime...

Wed, 12/16/2015 - 16:44 | 6931930 Thisisbullishright
Thisisbullishright's picture

VIX obliteration..... .engaged!

I feel like throwing up in my mouth a little bit watching this fucking charade!

 

 

Wed, 12/16/2015 - 17:02 | 6932009 xxxxx
xxxxx's picture

I guess you bought in to all the B.S. on this site  ha ha

Wed, 12/16/2015 - 16:45 | 6931939 cdude
cdude's picture

Oil production industry is going to implode. Credit has been keeping it afloat whilst waiting for crude prices to jump up-not happening. Credit has been tighening for producers and now it'll get even tighter and more expensive. Ba-boom!

Wed, 12/16/2015 - 16:58 | 6931983 Yen Cross
Yen Cross's picture

  The markets seem to be showing a bit of "Buyers Remorse".  lol

 A little late, but the USDX seems to be catching up to reality... Not discounting the occasional "after market" flash crash.

Wed, 12/16/2015 - 17:02 | 6932006 LooseLee
LooseLee's picture

What gives?

Rates lowered, equities up.

Rates raised, equities up.

Dollar lower. equities up.

Dollar higher, equities up.

Oil up, equities up.

Oil down, equities up.

Smells like s Pinko Facist Commie plan to me and no 'market' in any sense of the word...

Wed, 12/16/2015 - 17:05 | 6932016 xxxxx
xxxxx's picture

Listen to the tylers you will surely go broke.

Wed, 12/16/2015 - 17:17 | 6932081 Yen Cross
Yen Cross's picture

Clueless Much?

Wed, 12/16/2015 - 17:12 | 6932053 Sudden Debt
Sudden Debt's picture

The fucked up part of this market rise is that it now opens the door for a end of the year rally...

And the last big shortsqueeze will now also happen as a shitload of shorts are wiped out...

 

Wed, 12/16/2015 - 17:19 | 6932091 Yen Cross
Yen Cross's picture

Relax my friend. ;-)   Let Friday pass.

 

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