Morning 10-30

Markets in A holding pattern, Spoos 6 handle range awaiting Fed decision, GDP, ADP, and Bank of Canada meeting. GDP expected to be 1.6% down from 2% last quarter, ADP expected to show job gains of 110K down from 135K last Month. Crude Oil trading sideways, yesterday’s API numbers leaned a bit bullish let us see what EIA has to say later today. Fed expected to deliver a hawkish Cut, Deliver 25bps cut and indicate they are on hold for a while, Good luck with that. Bloomberg out with a study showing the press conference causing more market volatility then the Fed statement so all eyes on Powell at 1:30. Besides monetary policy, be listening for all repo comments. After market closes both apple and Facebook to report earnings and tonight at 8:00 China PMI.

FOMC commentary from Morgan Stanley

Weak profit growth… US economic growth has lost its lead, which was always to be expected when a fiscal expansion is not accompanied by a rise in economic growth potential. In retrospect, the 2018 economic boom may be classified as a textbook example of a sugar rush economy coming at the cost of weakening the long-term trade-off between growth and inflation. An economy printing higher costs (inflation) for each unit of economic growth will not progress within a favourable environment for corporate profits. It seems the US has entered this stage. This means, in the absence of productivity gains, it will be the US bond market determining the equity market outlook. Higher bond yields and rising equity prices may not co-exist for long. One or the other will have to come down.

…leaves markets at the mercy of bond yields: Hence, today, all eyes will be on Fed communication. A 25bp rate cut is baked in, otherwise the Fed would have used its communication channels before the blackout window to change market expectations. What will be important is its forward guidance. With capex weak and inflation surprisingly subdued, the Fed may have little incentive to sound less dovish in its forward guidance, as this would lead to an unwanted tightening of financial conditions by catapulting rates and yields higher, with the yield curve undergoing a bear flattening move. Should the Fed – against our expectations – turn hawkish, we would not hesitate to sell the rally in USDJPY.

News:

  • Futures Exchange Reins In Runaway Trading Algorithms– CME takes emergency measures to combat surging data volumes in Eurodollar futures https://www.wsj.com/articles/futures-exchange-reins-in-runaway-trading-algorithms-11572377375
  • UK will have a Dec 12 election as MPs act to end Parliamentary ‘stasis’-Guardian
  • Exclusive: U.S.-China trade deal might not be ready for signing in Chile: U.S. official– “If it’s not signed in Chile, that doesn’t mean that it falls apart. It just means that it’s not ready,” the administration official said. “Our goal is to sign it in Chile. But sometimes texts aren’t ready. But good progress is being made and we expect to sign the agreement in Chile.”( Reuters

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