Market Wrap – FOMC consolidation begins

Stock markets are starting to edge lower ahead of the FOMC rate decision, although the strong than expected ADP jobs report has set about more expectation that the FED will be hawkish on rates today.

Data earlier today showed that private businesses in the US unexpectedly created 239K jobs in October of 2022, the most in three months, and compared to market forecasts of 195K.

The hiring was not broad-based with the services-providing 270,000 jobs, led by leisure/hospitality, and trade/transportation/utilities. On the other hand, jobs were lost in information, professional/business, financial activities, education/health. Also, the goods sector shed 8K jobs, mainly due to manufacturing.

Nela Richardson, ADP chief economist said “Goods producers, which are sensitive to interest rates, are pulling back, and job changers are commanding smaller pay gains. While we’re seeing early signs of Fed-driven demand destruction, it’s affecting only certain sectors of the labor market”.

Meanwhile, the annual pay growth in the United States remained nearly the same for job starters 7.7 percent and slowed slightly for job changers to 15.2 percent.

The Federal Reserve is widely expected to raise the target range for the federal funds rate by 75bps to 3.75%-4% in its November 2022 meeting. It would mark a sixth consecutive rate hike and the fourth straight three-quarter point increase, pushing borrowing costs to a new high since 2008.

Still, investors are expecting the central bank to signal or leave the door open for a reduction in the size of its rate hikes starting as soon as December. The odds are currently divided between 50bps and another jumbo 75bps rate hike for the end of the year.

Fresh economic data has been pointing to a robust and resilient economy although some signs of a slowdown start to emerge, namely in the housing market, while inflation holds close to 40-year highs.

If the Fed do implement a 50 basis points hike and use pivot language then we are likely to see stocks shooting higher, the buck selling off and cryptos skyrocketing.