- Major equity indices and specially treasuries (in price terms) are touching lows as market awaits the all important FOMC tonight. All sector ETFs ended in red with real estate (-2.63%) and materials (-1.90%) leading lower. For a change, Nasdaq Index fared better than SPX Index (-ve 1.13%) and was down less than 1% on the day. Dollar strengthened, Gold continued to weaken and crude continued its violent intra-day moves in US trading session. Today morning major Asian equity indices are following US market close and trading in red. KOSPI, Topix and Shanghai Composite are all down close to 1% as of writing.
- US 2 year treasury rates are sitting just below the psychological level of 4% making govt bonds an interesting proposition for investors who want to park cash while waiting for markets to stabilise before deploying cash again in riskier assets. In currencies, EURUSD is trading below parity while sterling continues to weaken. GBP implied vols are sky high with 1 week vol over 15% implying an approx. move of 200 pips in the next 7 days which encompasses the BOE meeting as well.
- For FOMC Market is pricing 100% probability of atleast 75bps rates hike with some whispers for a jumbo full percentage point hike as well. If Fed actually goes 100 bps – we might see another big leg down in equities and treasuries with?dollar rallying further. We will also see the updated Dot Plot this time where the individual Fed governors will offer forecasts for where they see the fed funds rate in the years ahead. The current median projection for 2022 and 2023 is 3.38% and 3.8% respectively and market suspects these will be revised upwards. Also interesting (and perhaps market moving)?would be to see the updated Forecasts on Inflation (current core 2022 PCE forecast is 4.3% from June FOMC), Forecasts on GDP (June FOMC forecast was 1.7% for both 2022 and 2023) and Forecasts on Unemployment ( current forecast is 3.7% for 2022 and 3.9% for 2023).
Good luck out there and have a great day!
