Tonight FOMC is another ”must see” event as the Fed is caught long and wrong its own three to four hikes in 2016 – the employment data on headlines basis continues to support higher inflation through wages but a few “stones” has entered the Fed shoe:
The industrial sector continues to slow the US economy and its getting more difficult for Fed to see this as transitory:
Reality in “oil country”…….and export in 2015? Zero = Strong US$ is having ‘material’ impact..
And yield curve most flat in years… = (slow-down is coming)
GDP now Atlanta keeps coming off…
Back to the prevailing issues of Fed vs market:
This is FED’s expected number of hikes (12 month minus /0.25) which is 1.81 – where this number moves POST meeting tonight dictates direction of market and risk:
The correlation in 2016 is sky high btw assets (Here Crude vs. rest)
Fed will try to “keep calm” but most likely they will revisit: “External factors text” from August…..unlike in August I doubt that would lead to sell-off as market sees this a “path” to less Fed hikes in 2016
Fed is concerned about sell in equity, but will never publically admit “tracking it”… hence don’t expect comments here……
Industrial slow-down could be mentioned as having gone from “transitory” to concerning or downgraded outlook….
There are NO press conference or new guidance…
I continue to expect another does “lower for a lot lot longer text… “ to emerge slowly and co-ordinated over next few weeks – ECB started last week, slightly downbeat assessment from Fed this and more BOJ very soon…..
The key theme remains: A strong US$ kills growth, inflation and commodities……Below shows my thesis ……in practice…