FOMC reversal?

S&P 500 was rejected at 3,920s, but bonds didn‘t paint a disastrous picture throughout the day. The dollar‘s long lower knot seems to favor the bulls once the FOMC dust settles. I count on the Fed‘s 75bp hike and overall message to be hawkish, but it looks to be losing some punch since the Jackson Hole and Sep FOMC, which is visible in precious metals.

Yesterday‘s economic data fed into the hawkish Fed fears, and the premarket session is continuing on the same note, with stocks, bonds, commodities and the dollar all declining – except for precious metals.

It seems the initial reaction to the monetary policy statement would be about more selling, and should Powell be unequivocal, blunt and concise in both the statement and press conference, more selling would follow. This scenario though looks less probable to me as I favor the buyers to step in on a less than totally hawkish delivery.

The real economy is slowing, and even though core inflation remains stubborn and job market tight, the Fed would prefer not to deliver an uberhawkish message, but one consistent with their wish to keep the Fed funds rate at slightly restrictive level (that‘s 4.5% year end, meaning 50bp in Dec) for a significant amount of time as they wish to avoid tripping the economy into recession, which another 75bp hike in Dec would not only do, but hasten (it‘s also about the path of hard landing that markets are discounting already).

As regards commodities and precious metals, they would benefit as much as stocks from the less hawkish than feared stance. Bonds are cautious, and there is no sign of panic. Just as in stocks, the initial downside (which has historically lasted even into the day after), is likely to be at least partially reversed to the upside already today.

I‘ll of course be commenting live on Twitter the upcoming market and Fed moves.