It is widely accepted that the FOMC will not change monetary policy on Wednesday. The Committee’s comments about lingering inflationary pressures, stabilization in the labor markets and current growth fueled by AI will be parsed. The Committee will not issue a new “dot plot” or the individual members expectations for inflation, growth and employment.
At the time of this writing, the market is suggesting an interest rate reduction in June and September.
The consistency of the last five to seven years is the unexpected is continuing to occur, where Federal Reserve forecasts have vastly missed their mark.
Earnings season is gathering momentum, and the early results are offering a window into the economic and political crosscurrents shaping Corporate America’s outlook for the year ahead. Many will state the S & P 500 has little room for error.
Bloomberg remarks that the start of this earning season suggests geopolitics is a primary driver of stock volatility, however this volatility is reduced if corporate America delivers. Some suggest that if the economy is performing around the Atlanta Fed’s GDP Now estimate of 5.3%, the odds that results exceed expectations increases.
Changing topic, last week’s selloff in Japanese debt was a big surprise with many suggesting a similar selloff could occur in the UST as the conditions are similar.
What is perhaps most disconcerting that according to Bloomberg it took just $280 million of trading to push Japan’s $7.2 trillion government bond market into a meltdown. Japan has the third highest amount of debt outstanding. The selloff wiped out about $41 billion across the Japanese curve and sent shockwaves through global markets.
Treasury Secretary Bessent called the selloff a “six standard deviation move” or an event that very rarely occurs or “one in 500 million.”
The disconnect between the size of the wipeout and the amount that actually traded shows how illiquid the bond market has become, a big weak spot in the global financial system.
Unknown levels of leverage added to the massive selloff.
What will happen this week?
The FOMC meeting is expected to be a non-event. The economic calendar is not “robust” thus suggesting headline risk and earnings reports may be the primary catalysts.
The economic calendar is comprised of several manufacturing indices, trade balance and a sentiment survey.
Last night the foreign markets were mixed. London was up 0.17%, Paris down 0.17% and Frankfurt down 0.06%. China was down 0.09%, Japan down 1.79% and Hang Seng up 0.06%.
Futures are unchanged as geopolitical and societal tensions are elevated. This is a big earnings week as over 90 S & P 500 companies post results including AAPL, META and MSFT. The 10-year is up 2/32 to yield 4.22%.
