How will today’s outcome of the Fed meeting be interpreted? Most are expecting the dissention could be great between the hawks and the doves, amplified by political pressures. Many believe the potential incoming Fed Chairman may have a political bias, a poor posture given that the Fed is expected to remain free from political biases.
While most should acknowledge that politics is involved in every decision, the current political posturing is abhorrent to many who believe there should be independence of the central bank from the executive branch to avoid the appearance of a banana like republic.
Yesterday Treasuries weakened following a better-than-expected headline JOLTs Job Openings reading but remained in a well-defined range. Job openings for October beat expectations but under the surface the changes in the number of “quits” and layoffs suggested a less rosy picture.
Layoffs rose to the highest since the start of 2023 and the “quits rate” or the percentage of people who voluntarily left their jobs fell to the lowest since May 2020.
US monetary policy and the yield curve is caught between the uncertainty over domestic data and a global repricing that is pushing yields higher almost everywhere. The markets are interconnected in many ways and what happens in Japan or the EU can directly impact the US.
Perhaps one of the greatest issues facing all markets is the massive amount of global sovereign debt that must be refunded over the next several years. A dated Bloomberg statistic stated that 81% of global economic activity has experimented with QE over the past decade and this debt must now be rolled over.
Some are stating that corporate debt may have less event risk than sovereign debt. However, this narrative is also being challenged because the demand for debt from the largest technology companies to fund gargantuan AI cap ex plans is huge, where all issuers are expected to outperform. This will not be the case.
Writing the obvious, the outcome of today’s markets could heavily depend upon the 2:00 PM post meeting statement.
Last night the foreign markets were down. London was up 0.29%, Paris down 0.30% and Frankfurt down 0.45%. China was down 0.23%, Japan down 0.10% and Hang Seng up 0.42%.
Futures are flat in “muted” trading ahead of the outcome of the FOMC meeting. The 10-year is off 5/32 to yield 4.20%.
