How to trade a Fed surprise
Markets are leaning comfortably towards a dovish statement from the Federal Reserve but if Yellen decides to prepare the market for a hike in December, expect violent trading afterwards.
Here are three trades to favor if the statement signals a hike.
1) Buy the US dollar
There's nothing more straight-forward than buying the currency of a central bank that's hiking rates. It doesn't particularly matter where you buy the dollar, it will rise across the board. One spot that would be particularly attractive is USD/CAD. I expect a hawkish statement to spark risk aversion and that will hurt commodities.
2) Sell gold
Gold bugs are leaning precariously on the dovish side today with prices up $12 to $1178 ahead of the announcement. A hawkish Fed would be an instant reason to sell gold for two reasons. First it would damage the narrative for global easy policy and secondly it would boost the dollar, which weighs on gold.
3) Sell stocks
The stock market will kick and scream if it doesn't get its cheap money. The only thing keep the equity market going is cheap borrowing and buybacks. Companies aren't growing revenues or profits and the lack of support from Yellen would be a shock.
