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Let's talk about the Fed meeting... Starting with this quote from the BofA:
"Investors should not assume the Fed will step in to placate volatile markets... inflation is at multi-decade highs, and the unemployment rate is sub-4%.
Given the Central Bank's dual mandate, tightening is wholly appropriate"
Sums things up well. Tightening is coming. Everyone knows it.
The debate has moved on to the HOW rather than the IF.
- How many hikes, when will they start?
- QE ending now or March?
- How about QT...?
These are the main questions (and what the debate will ultimately be reduced down to).
The primary aim of tighter monetary policy?
Tighten financial conditions to ensure that the economy doesn't overheat.
There are signs it's already working, although conditions remain pretty easy overall:
Some will point to this tightening and say it's all because of equities falling.
🗣 "Well of COURSE financial conditions are tightening, equities are falling"
Most Financial Condition Indices (FCI's) include equity inputs 👇
Quant Insight don't factor equities into their model. They note that US credit conditions have experienced a sharp squeeze 👇
Credit spreads are starting to widen too. Bottom line, it's slowly filtering through.
For now, it's too early to expect them to change course or dial it down.
Fed haven't even finished QE or even hiked once yet and markets are looking ahead to the end of rate hikes and QT...
There are other factors that will influence Fed decisions too. Keep an eye on the Employment Cost Index to be released on Friday (as mentioned here 👇)
Great... All I want to know... Do I buy the stocks or not?
JP Morgan say YES. Under the surface of the indices, there's single stock value hiding...
JPMORGAN: “S&P 500 drawdown of -11% is masking the severity of this sell-off .. not only in correction, it is already in bear market territory without a recession in sight.”
Sell-off is “overdone, at least in the short-term, and see a bullish setup .. going into today’s FOMC ..” ~@CarlQuintanilla
Index futures have rallied. Nasdaq's up over 2% today, but still below Monday's high.
Trying to guess how markets will respond to today's decision is a mug's game...
The meeting is unlikely to resolve much, but there might be a few clues to take away... On the plus side, markets are making volatility great again. 🙌
If you want to do even more homework before the meeting, jump on this monster thread of previews 👇
As always, the statement will be released here:
And the Presser here:
Don't forget the Bank of Canada meeting at 3PM GMT
Markets are looking for 6 (SIX) rate hikes from the BoC this year with a 70% chance of a 25bps hike today...
We really don't think the BoC will match these 2022 expectations. Canada's private debt to GDP ratio is just one of many reasons... 👇
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