To The Moon

Probably different from the focus of the general media speculation, Wednesday's FOMC focus is not to add 50bps or 75bps in December, because Powell will most likely avoid the issue of how much should be added in December.

Each time the biggest issue for the FOMC is to judge hawkish or dovish, and the focus of each meeting is not the same, so many times hawkish or dovish we are judged by the market sentiment.

Last FOMC I see someone sorted out the main points of the meeting corresponding to the market volatility, this time there is no particularly widely circulated version, currently only JP Morgan Chase team collated a corresponding indicators:

-50 basis point hike, with a dovish press conference: “It is difficult to conceive of a scenario where this outcome occurs given inflation levels and a tight labor market,” the team wrote. “Should this outcome occur, the immediate reaction could produce a double-digit one-day return for equities.” S&P 500 up 10% to 12%

1. -50 basis point hike, with a dovish press conference: “It is difficult to conceive of a scenario where this outcome occurs given inflation levels and a tight labor market,” the team wrote. “Should this outcome occur, the immediate reaction could produce a double-digit one-day return for equities.” S&P 500 up 10% to 12%
2. -50 basis point hike and a hawkish press conference: An outcome that could stem from a Fed that is increasingly concerned about financial stabilities as it balances growth and inflation. S&P 500 up 4% to 5%
3. -75 basis point hike and a dovish press conference: A scenario viewed as having the second-highest probability of playing out. “If you saw the Fed give explicit guidance for the December meeting, then that is likely viewed as a dovish outcome.” S&P 500 up 2.5% to 3%
4. -75 basis point hike and a hawkish press conference: “This is the most likely outcome with Powell retaining optionality for December and 2023 meetings while emphasizing the current risks to inflation moving higher.” The team also views this as the outcome most expected by bond markets, so says there may not be a significant move in yields that keeps equities from melting down. S&P 500 down 1% to up 0.5%
5. -100 basis point hike and a dovish press conference: While this is seen as unlikely as a 50 basis point hike, it may mean the Fed both wants a higher terminal rate and wants to complete the tightening cycle this year. “Separately, the market may digest this move as the Fed having prior knowledge of where next week’s CPI prints.” S&P 500 down 4% to 5%
6. -100 basis point hike and a hawkish press conference: Considered the best outcome for equity bears waiting for this latest rally to dissipate. “Here this would seem to be a Fed reassessing its own inflation forecasts, which some investors feel is too optimistic.” S&P falls 6% to 8%, likely resting year-to-date lows

These 6 pointers will make the outcome of this meeting very clear, at present, the market is inclined to 3 or 4. that is, a 75bps rate hike, but there is a wide divergence in whether to give guidance. The mainstream media is generally optimistic and more inclined to 3, that is, a 75bps rate hike and give guidance for December.

But after the last meeting, or if you've seen Powell's press conference you know the old man is better at being vague. Last time a reporter asked him what he expected for the next rate hike, his answer was: meeting by meeting, and then make a judgment based on the actual economic data. Never mention a little expectation.

So this meeting after the emergence of December expectations, 99% of the media may be the CBOE rate hike forecast moved out.

How much to raise in December still comes from the judgment of the futures market, not the actual decision of Powell himself.

In addition from the actual inflation situation, the only depression is very bad is retail, which is also reflected in this earnings season. But not nearly enough into let the Fed turn doves expected, September non-farm payrolls and service and food inflation is still strong.

Then there is no doubt that the performance of the FOMC this time must be the fourth, FOMC will still carry out the hawkish to the end. Thursday's market opening is clear, in anticipation of the hawkish launch must be a low open.

The market will open lower or lower depending on whether this meeting will again move the terminal target of interest rate hikes. September FOMC terminal rate is 4.6%, the market hedge expectation is 5%, if this meeting again to enhance the terminal, such as to 5.1%, the market will only broaden the risk hedge expectation again, then I think the market will then move in the same way to fulfill Article 5, the index point will be another step down.

For now, from the market atmosphere or around the performance of friends doing transactions, are more optimistic, corresponding to the opening on Thursday a small pullback and then a low open high; and if once again to raise the end of the interest rate hike, it is a feast for the short.

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