November Kicks Off with FOMC

Technical charts and Trackers

What better way to kick off a new month, then to have an FOMC meeting, where investors widely expect a non event as the FOMC is expected to keep interest rates unchanged. Well we know over the last month or so the US bond market has effectively hiked rates for them by increasing the long rate, indicated by the US govt 30Y Bond. Since the last FOMC meeting the 30Y has risen from 4.42% to a high of 5.178% and now at 4.983%:

We want our readers to truly understand that it is the global bond markets that control the price of credit across the longer durations, the FRB can only impose their will via setting short term interest rates in hopes the investing public recognizes their resolve for keeping those rates higher for longer.

It took the bond market a long time to believe the FRB and their resolve but we believe the market has set the expectations for now in regards to the overall rate trajectory. The base case expectation seems to be the FRB is done raising rates and that GDP in Q4 will show a slowing economy and a reduction in overall inflation to a more steady downward trend.

Interest rates across durations seem to see the 5% area as a logical stopping point for now. We have seen players come to buy bonds above this threshold in the 30s and 10s in support and pushing rates back down. However we aren’t sure that the FRB wants to take their foot off the pedal in any true meaningful way, because they know that inflation expectations are as pernicious as inflation itself and the last thing the FRB needs is for the investing global community thinking its pausing and not taking inflation seriously any longer. So we expect the FRB to maintain a harsher, higher for longer tone, because they have too. Whether or not they continue to run down their balance sheet or whether or not DC can curb spending, is another story.

For now the markets seem to like where rates are and believe that they will continue to push inflation down overall. As far as the US equity markets, they just posted their third monthly decline in a row (SP500, Nasdaq, Dow, R2k), quite a rare occurrence. As far as some of the technical damage though, lets start out with the Nikkei which posted its 4th consecutive monthly negative close. A technical occurrence last seen in 2008! It has a lot of technical forces working against it right now, the 0.786 long term fib and the ¥ and YCC floating higher are just a few fundamentals as well:

The BOJ has announced plans to allow the JGB 10Y yield to float higher which should eventually spill into ¥ strength, which should also put downward pressure on the Nikkei. It seems many are set up for this move lower now.

Looking at US index futures the SP500 slipped below 4311 and traded down to the low 4122 area, but is now holding above 4166 which is our line in the sand. The bulls are in control for now but a trade back below 4166 will see renewed downside pressure. Upside resistance is 4311: