Markets await FOMC decision
This Daily Digest will cover:
- 📊 Markets await FOMC decision
- 💬 Words matter more than the decision
- 🔇 Risk markets quiet but underlyingly bid
- 🪙 Crypto like a coiled spring
A very macro piece today I am afraid, but it is a macro story tonight that will dictate.
The eagerly awaited FOMC decision tonight kicks off the big 3 central bank decisions over the next 48 hours in what is likely to be a week that shapes the market for the next month or so. A rate hike of 25 bps is almost nailed on hence what forward guidance we receive, and what Chairman Powell says at the press conference, will be of far greater significance.
There are split views on the desk on what we will hear and frankly split views on what the market reaction will be to what he could say. I have the keyboard so it is only mine you will get today!
The data out of the states has continued to impress recently. Inflation is dropping faster than expected and earnings have been mixed but thus far have avoided the red flags I thought we might see. The employment data yesterday showed a cooling in wage inflation which frankly matters to the Fed. These are the ingredients of a job well done.
I suspect Powell will be fairly down the middle tonight but HAS to acknowledge that the work they have done is having the desired effect. He will likely continue to indicate a terminal rate of 5% and that a pivot to rate cutting is a story for next year rather than this, but I think he will put even more emphasis on the data moving forwards which will allow the market to interpret this as flexibility. A soft landing is somehow looking likely still (not in my view but that is becoming a Q2/3 story rather than a here and now one). The market dynamic here is so disjointed with an almost universal risk off view but markets are buoyant. The real risk tonight is that this market is underweight risk, not short of enough USD, nowhere near long enough Crypto and all 3 markets roar on any “good news”.
I want to buy any sell off in Stocks and Crypto and buy any USD dip if my expected Powell testimony plays out.
Crypto markets are once again trading like a coiled spring. Should the Fed be hawkish tonight there could be a very nasty move lower. But, if it plays out as I expect, I think the market continues to be horribly underweight and I have a feeling 25,000 will not only be seen but be broken in BTC if we get the green-light in risk assets. I have had so many conversations with people who have missed the move and therefore calling it a squeeze. Well tonight I suspect we will find out how right or wrong they are…
Good luck as always!
