Markets came under pressure over concerns about the direction of monetary policy. Will the FOMC lower rates again in four weeks? A ton of data is expected to be released in the coming weeks, a lot of it old, cloudy or suspect given the length of the government shutdown.
To make any concrete statement is difficult given the data vacuum.
Stubbornly high inflation and continued weakness in the labor market are driving a growing divide among Fed officials on the best path ahead for interest rates. After policymakers lowered the benchmark for the second straight time last month, Fed Chair Powell warned that a December cut is far from a “forgone conclusion.”
Since then, a number of Fed officials have expressed hesitation, or outright opposition, over supporting another cut in December, an environment amplified by a dearth of data. One Fed official commented that if the Fed lowered rates again, the market might doubt the Fed’s commitment to its 2% inflation target.
At the time of this writing, the market is suggesting less than 45% chance of an interest rate cut in December.
Long dated Treasuries sold off yesterday as the 30-year Treasury auction was met with “weak demand.” Concerns are rising that a liquidity issue might be unfolding in the financial system, a major reason as to why the Treasury will end its Quantitative Tightening cycle of purchasing Treasuries (not mortgage backs) on December 1 and embark upon “QE light”…the purchase of short dated Treasuries to inject liquidity into the financial system.
What will happen today?
Last night the foreign markets were down. London was down 1.84%, Paris down 1.49% and Frankfurt down 1.65%. China was Japan down 1.77% and Hang Seng down 1.85%.
Dow and NASDAQ futures are bifurcated as the former is down 0.25% and the latter down 1.75% as fears of a “hawkish pivot” by the Fed is causing some to question extend tech valuations. The 10-year is up 11/32 to yield 4.08%.
