Erik Schafhauser Zürich Erik Schafhauser Zürich Erik Schafhauser Zürich

Morning Brew December 15 2021

Morning Brew 1 minute to read
Erik Schafhauser

Senior Relationship Manager

Summary:  Omicron and Inflation killing the year and rally


Good morning,

Today is the long expected day the FOMC will announce it`s rate and policy decision. Even though there are a few other data points today, eyes are on Powell at 20:00 and his press conference at 20:30. What to expect? Our John Hardy has outlined 3 scenarios and after the strong US  PPI yesterday, the hawkish case seems likely and “transitory” a thing of the past.  The question is how much hawkishness is priced in?

If you are looking to take a position over the number, a position with optionality might be a good idea.

FX Update: The Fed expectations conundrum.

  • The dovish case (low probability) I have a very hard time seeing the Fed under-delivering relative to expectations, as the whole intent here has to be to at least meet the market at where it is priced, given the new tone. What would this look like? Some weird partial acceleration of the tapering and dot plots that don’t quite meet the market expectations for 2022 or 2023, perhaps. Don't want to dwell on this scenario...
  • The base case scenario (60+% odds) this is one in which the Fed delivers a doubling of the speed of tapering by $30 billion as of this meeting, which puts it on schedule to zero balance sheet expansion by mid-March next year. The policy statement crystallizes the hawkish shift that has recently been made clear and includes watered down versions of the hawkish scenario below (keeping rate lift-off language a bit hazy so we don’t know whether to bring a March hike fully into view, a last residual sign that it is afraid of its own guidance, a dot plot that meets the market expectation at the median, etc..)
  • The hawkish case (30%+ odds, and what I hope they deliver) the Fed delivers a doubling of the taper speed or faster (hinting that it wants it done ASAP) and sufficiently credible language on the timing of the lift-off to clearly bring the March FOMC meeting into view as a possibility. It will be important for the Fed to eliminate as much forward guidance as possible to really look hawkish and suggest merely that it is going to react to conditions as required. This could also be achieved in part with lots of dispersion in the dot plot forecasts for 2022 and 2023 to make it look as if the Fed can see a wide range of outcomes, depending on what is justified by incoming data and conditions on the ground.

Markets yesterday remained somewhat nervous, especially after the US PPI came 0.4% higher than expected at 9.6% rathe rather than the 9.2%.

US Indexes closed lower with the Dow -0.3%, the S&P 500 -0.75% and the Nasdaq -1.14%. The USD Index  seesawed but is basically at yesterday’s level, EURUSD at 1.1270 and GBPUSD at 1.3240. Gold and Silver lost on the PPI number and are still trading at 1769 (near support) and 21.90.  Adobe lost 6% on a downgrade by JP Morgan.

  • Over night we see mixed data out of China with the Industrial Output higher at 3.8% but Retail Sales disappointing at 3.9% vs the expected 4.6%. 
  • The US Congress approved raising the federal government's debt limit by $2.5 trillion to $31.4 trillion
  • Toyota Motor will invest USD 70 bio to electrify its automobiles
  • Tesla said it would start accepting Dogecoin on a test basis, the digital currency gains as much as 24%
  • The Turkish Lira is under pressure again at 14.50 ahead of Central Bank meeting tomorrow.
  •  The US will add eight Chinese companies to an investment blacklist this week

Events today:

UK Inflation data at 8:00, French CPI at 8:45, US Retail Sales at 14:30, FOMC at 20:00 and the press conference 30 Minutes later.

Please remember that Friday is the large expiry with Index Futures and Options for December trading for the last day.

Trade safely today, it should be an interesting day

 

Disclaimer

The Saxo Bank Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website. This content is not intended to and does not change or expand on the execution-only service. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Please read our disclaimers:
Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
Full disclaimer (https://www.home.saxo/legal/disclaimer/saxo-disclaimer)
Full disclaimer (https://www.home.saxo/legal/saxoselect-disclaimer/disclaimer)

Saxo Bank (Schweiz) AG
Beethovenstrasse 33
CH-8002
Zurich
Switzerland

Contact Saxo

Select region

Switzerland
Switzerland

All trading carries risk. Losses can exceed deposits on margin products. You should consider whether you understand how our products work and whether you can afford to take the high risk of losing your money. To help you understand the risks involved we have put together a general Risk Warning series of Key Information Documents (KIDs) highlighting the risks and rewards related to each product. The KIDs can be accessed within the trading platform. Please note that the full prospectus can be obtained free of charge from Saxo Bank (Switzerland) ltd. or the issuer.

This website can be accessed worldwide however the information on the website is related to Saxo Bank (Switzerland) Ltd. All clients will directly engage with Saxo Bank (Switzerland) Ltd. and all client agreements will be entered into with Saxo Bank (Switzerland) Ltd. and thus governed by Swiss Law.

The content of this website represents marketing material and has not been notified or submitted to any supervisory authority.

If you contact Saxo Bank (Switzerland) Ltd. or visit this website, you acknowledge and agree that any data that you transmit to Saxo Bank (Switzerland) Ltd., either through this website, by telephone or by any other means of communication (e.g. e-mail), may be collected or recorded and transferred to other Saxo Bank Group companies or third parties in Switzerland or abroad and may be stored or otherwise processed by them or Saxo Bank (Switzerland) Ltd. You release Saxo Bank (Switzerland) Ltd. from its obligations under Swiss banking and securities dealer secrecies and, to the extent permitted by law, data protection laws as well as other laws and obligations to protect privacy. Saxo Bank (Switzerland) Ltd. has implemented appropriate technical and organizational measures to protect data from unauthorized processing and disclosure and applies appropriate safeguards to guarantee adequate protection of such data.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the U.S. and other countries. App Store is a service mark of Apple Inc.