The day has come when the boxed-in Fed has no choice: with the vast majority of the market expecting a rate hike, Yellen has to deliver or suffer a crushing confidence blow like no other. And deliver she will, with expectations that said hike will be “as dovish as possible”, which however as we explained yesterday,is not really possible. For now however, the market is desperate to convince itself that just as more easing and more QE were bullish for the market, so rate hikes are just as bullish. Recall from late 2013: “tapering is not tightening,” then the 2015 version of this refrain is “tightening is not tightening.”

It remains to be seen just what happens after the Fed’s announcement but in the last few hours before it, the surge higher in global stocks and equity futures continues as the last ounces of a “dovish rate hike” are fully priced in.  Asian and European stocks, S&P futures all rise ahead of Federal Reserve’s rate decision. The Dollar is little changed vs euro. Oil, however, has held its losses after late news last night that the U.S. plans to lift the 40-year-old ban on crude oil exports, which in itself will have little impact on oil prices, but as Virendra Chauhan at Energy Aspects in Singapore says “The deal to lift the crude ban is a significant change in U.S. policy, but in terms of the near-term impact on prices, we expect that to be blotchy and sentiment driven. All that you’re doing is transferring the glut from the U.S., where most of the storage capacity is, to elsewhere in the world.”

So with less than 8 hours until the Fed’s historic announcement – and for the best indicator of how the market will respond to the Fed’s announcement at 2pm just keep an eye on the USD/JPY as it will dictate every other class, this is where we stand.

Aside from the Fed countdown, here are some of main overnight news:

As noted above, overnight markets were in a euphoric state, starting in Asia where stocks traded higher tracking the positive close on Wall St., following the continued rebound seen in energy prices ahead of the FOMC meeting later on today. The energy sector outperformed across all bourses, particularly in China where the sector rose by more than 6% in the Hang Seng (+2.0%) index.
Nikkei 225 (+2.6%) was led higher by telecom stocks, which were supported after Japan’s communication ministry panel did not push for mobile carrier rate cuts.