Fed Paints Backdrop For More Quantitative Easing

January 26, 2012 12:14 AM

What Traders are Talking About:

* Markets still reacting to Fed statement. The Federal Open Market Committee pledged Wednesday to keep interest rates exceptionally low through at least late 2014 amid a backdrop of sluggish economic activity. Because of sluggish economic activity and low inflation expectations, the investment world believes the Fed is moving closer to a third round of quantitative easing. As a result of all this, investors are still scrambling, trying to get exactly the right "read" on the Fed's intentions.

The long and short of it: The more dovish-than-expected statement is weighing on the U.S. dollar index, which slipped to the lowest level since Dec. 12 overnight. In turn, commodities and stock futures are being supported by the Fed stance.

* Dry near-term forecast for Argentina, southern Brazil, but rains possible in Argentina next week. Forecasts signal Argentina will be mostly dry through Saturday. Another wave of rains could develop over Argentina's key corn and soybean areas by Sunday, with the best chance for rains early next week. In southern Brazil, conditions are expected to be dry in southwestern Parana and Rio Grande do Sul -- the driest areas -- for at least the next five to seven days. Hotter temps are also possible through these areas. Meanwhile, rains are likely further north in Brazil. The top soybean production state of Mato Grosso is forecast to get more harvest-delaying rains.

The long and short of it: Traders' focus will be on the rain event forecast for Argentina next week.

* Basis strengthening. Corn and soybean basis across the countryside and at the Gulf is strengthening, as demand is improving and farmer selling is limited. The national average basis we track improved 7 3/4 cents for corn and 4 3/4 cents for soybeans over the past week. Strengthening cash markets should limit selling and promote fresh buying interest in corn and soybean futures.

The long and short of it: Cash is king -- and cash markets are currently strong (and strengthening).


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