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Is there any surprise scenario for tomorrow's FOMC?
Summary: Today, a breakdown of the market action yesterday in US equities, with big games in Google-parent Alphabet and even bigger gains in an "old tech" stock that has suddenly been revivified by AI. We also look forward to the FOMC tomorrow and wonder why the Fed doesn't go ahead and cut 50 basis points, even if they are most likely not to. Meanwhile, the US dollar is already breaking lower ahead of the fact - after all, isn't the hawkish scenario non-existent? Lots more also on today's pod which is hosted by Saxo Global Head of Macro Strategy John J. Hardy.
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Today’s Links
My FX Update from today - previewing the five central bank meetings incoming this week and whether the US dollar breaking down - it is already, but will the FOMC meeting cement this? Also, is USDJPY a floating peg or can it break this unbelievably sticky range by the end of this week? The Breaking Points podcast - I like to listen to them on occasion on some issues even if I find they miss the mark on more in-depth topics, especially economy-related. In this case the initial part of the podcast framing the Charlie Kirk assassination and the “meme-ification of reality” is a compelling one, together with the intellectual honesty and humility of not wanting to take their conclusions too far until more is known X thread from Kerrisdale Capital talking up their short case for Coreweave as a company that is engaging in “value destruction dressed up as expansion”. Yikes! There is also a full 30-page PDF if you care to get into the weeds. The Saxo Global Risk Indicator measures volatility across a number of asset classes, from the VIX to corporate and sovereign credit spreads and others. It has a spotty record in terms of showing predictive power, especially in terms of the timing of what will come next. Arguably, there were profound signs of strong divergence into the late 2021 market highs, when the Indicator was showing lower highs while the S&P 500 peaked. AT the late 2022 bottom, the “bullish divergence” was muddled. Later, in mid-2023, the two data series look fully in synch. Then came the very drawn out bearish divergence into the market top in the summer of 2024 before the JPY carry trade meltdown, followed by zero warning ahead of the meltdown on Trump’s trade policies spooking the market ahead of the April climax low. Recently, a minor bearish divergence has developed, as we have new market highs with the Risk Indicator failing to match its recent highs. As the indicator is measured as the standard deviation relative to a moving average. There is a natural “ceiling” in low volatility environments, while the risk-off events achieve asymmetric negative readings - appropriately reflecting the scale of vol spikes.Chart of the Day - Saxo Global Risk Indicator
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