(Note that these are solely the views & opinions of KVP, they do not constitute any trade or investment recommendations of any kind.)
To see this wk’s Macro Monday click here
Happy Macro Wed 30 Oct 2019
APAC Global Macro Morning Brief – The Risk & Opportunity of the Fed Today...
So seems like there is a contingent of the market out there that believes we may not get a Fed cut today – with a 94% implied probability of a cut, that leaves 6% expecting no change
If we did see not rate cuts today, UST are likely moving form these 1.83 lvls to 2.0%, precious metals would be crushed & equities would also likely sell off heavily
In fact the few things that would be up in such a scenario would be volatility (VIX is still at 13.20, remember the VIX Apr calls 65 strike trade from last wk) & the USD, as well as the usual risk off relative value plays (i.e. staples & utilities vs cyclicals, yen, swiss franc)
Whilst everything is possible, KVP does not think this FOMC board has the will to buck the trend so strongly – also recall we have three outliers from the previous meetings, Bullard who advocated -50bp cut, George & Rosengreen who were for no change… since then we have had worse US economic data, with a pair of ISM readings from last month, that missed… and now have two back to back months of ISM mfg. in contraction territory
Still anything is possible – what if they cut by 50bp, if perhaps they read KVP’s piece yesterday on both skin in the game, as well as a half life on 2020 given the US’s 2020 elections. In such a scenario of a -50bp cut, bond & precious metals bulls would have a field day… and US equities would likely make ATHs – AGAIN!
The more likely scenario is still a 25bp cut, with the key point being the communication & indication of where they are sitting into the rest of the year. More than likely they will be on the side-lines & wait + see mode…
Yet KVP still feels at some point over the next 6-8months, Fed are going to cut: like a fat boy carving up a chocolate cake, like Edward scissor hands at a gardening seminar, like Trump as head of the Fed, like an airline operator on the 737 Max, like Zuck in front of Congress, etc… You get the picture…
Again remember, the Fed has a half-life on 2020… don’t think they want to be seen moving rates in the 2nd half of an election year with an administration that has been very vocal about what the Fed should be doing
Its worth re-flagging again that most of the key US economic data this wk falls on Friday, yet we will get 3Q US GDP tonight where 1.6% is expected vs. 2.0% from 2Q
And Bojo actually gets a win!
Trump is going to start being rationale next. So it looks like Dec 12 is going to be a general election… albeit by the looks of the news flow early Weds Asia morning… seems to be quite a bit of confusion of around what was just passed as folks just cannot keep track...
This time around KVP is surprised that sterling crosses are not much higher, cable was unchanged o/n at c. 1.2862… would have thought that we should be north of 1.2900 with some signs of progress...
EURGBP was also same lvls at 0.8635… and no change in either this Asia wed Morning
Lastly with all the focus on the Fed… it could end up being that the most interesting meeting will be from the BoC. They have continues to be relatively less dovish than the Fed, so it will be interesting to see what Poloz gets up to this Asia evening
Here are the links to the last Sep 18 FOMC statement & Sep 4 BoC Rate Decision, with the former cutting by 25bp & the latter leaving rates unchanged at 1.75%
Profitable positioning everybody, have a great day
- AU: 3Q CPI 1.7%e 1.6%p CORE 1.6%e/p
- EZ: Regional Flash CPIs & GDP, German Jobs data
- US: 3Q GDP 1.6%e 2.0%p, Crude Oil Inventories, FOMC statement at 02:00 / press conference at 02:30
- CA: BoC Statement & Monetary Policy Report