{"id":19703,"date":"2021-12-15T12:48:00","date_gmt":"2021-12-15T12:48:00","guid":{"rendered":"https:\/\/youtrading.com\/en\/?p=19703"},"modified":"2021-12-15T23:56:47","modified_gmt":"2021-12-15T23:56:47","slug":"all-eyes-on-the-fed-as-crucial-hawkish-pivot-anticipated","status":"publish","type":"post","link":"https:\/\/youtrading.com\/en\/all-eyes-on-the-fed-as-crucial-hawkish-pivot-anticipated\/","title":{"rendered":"All eyes on the Fed as crucial hawkish pivot anticipated"},"content":{"rendered":"\t\t
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Market Update<\/strong><\/p>

US equities were under selling pressure during Tuesday\u2019s session, with the S&P 500<\/a> eventually closing down 0.75% in the 4630s as traders favoured caution against the backdrop of a still very uncertain outlook amid the global spread of Omicron. A much hotter than expected US PPI report for November, which saw the headline annual rate surge to 9.6% versus expectations for a rise from 8.6% last month to 9.2%, also contributed to the decline amid fears of a more robust Fed response to inflation. Speaking of today\u2019s Fed meeting will be the highlight of the week insofar as the broader macro narrative is concerned \u2013 the bank is expected to double the pace of its QE taper and guidance on the future path for rate hikes will be closely scrutinised. This will come in the form of written guidance in the statement, verbal guidance in Chair Powell\u2019s press conference, and via the new dot plot.<\/p>

A few analysts have cited some hawkish risk going into today\u2019s announcement that might upset markets. The latest Bank of America Fund Manager survey revealed that the Fed is expected to end its taper in April and then follow up with just two rate hikes in 2022 (less than what money markets are pricing). According to Deutsche Bank<\/a> macro strategist Alan Ruskin, \u201cthere is an implied assumption that all the Fed has to do is tap the fed funds break a mere 150bps, and the economy will slow sufficiently to break the inflation cycle.\u201d \u201cYet we have never had a cycle peak where real rates have not been above zero,\u201d he continued, \u201cwhich means the market’s expected terminal rate is too low and possibly far too low\u201d.<\/p>

Analysts at Reuters note that if Fed members agree and plot a much higher peak, it would challenge the lofty valuations of stocks and the slim yields offered by Treasuries\u201d before adding that \u201cright now, bonds are implying cash rates will average only 1.8% for the next 30 years\u201d. Meanwhile, analysts at RBC Capital Markets said that if the Fed retreats from its prior emphasis on the ending of asset purchases not being linked to the automatic start of a rate hiking cycle, that could be another hawkish surprise that could feed into the build-up of expectations for more hikes in 2022.<\/p>

In terms of what markets have been doing on Wednesday ahead of the conclusion of the FOMC meeting and subsequent policy announcement at 1900GMT; US equities are broadly flat versus yesterday\u2019s closing levels, with S&P 500 futures in the 4630s still, while European equities are mixed. Asia stock markets were mixed, with focus there on Chinese activity numbers, which in the end didn\u2019t move the needle much for stocks or FX markets. For reference, Industrial Production in November was a little stronger than expected, growing at 3.8% YoY versus forecasts for 3.6% growth, while Retail Sales were weaker than expected, growing at 3.9% YoY versus forecasts for 4.6% growth, with sales weighed by new curbs to fight rising Covid-19 cases in some parts of the country.<\/p>

In terms of bond markets, the US yield<\/a> curve isn\u2019t much moved so far on the week, despite yesterday\u2019s hot PPI numbers, amid pre-FOMC caution, with the 2s in the 0.67% area and the 10s just under 1.45%, still well below pre-Omicron levels. Yields in mainland Europe also remain subdued and within recent ranges ahead of Thursday\u2019s ECB meeting, but notably, UK yields have been on the move higher, with the 2-year up 7bps on the session to above 0.5% in wake of this morning much hotter than expected UK CPI figures for November. Headline CPI came in at 5.1% YoY, well above expectations for a 4.7% reading, which is a ten year high. As of Wednesday, according to Reuters, markets were assigning a more than 60% probability of a 15bps rate hike from the BoE on Thursday, up from a 50% chance on Tuesday. Many economists have been betting the bank will hold put on rates amid the spread of Omicron in the UK which has added significant near-term risk to the UK\u2019s economic outlook. But the IMF on Tuesday urged the BoE to crack on with a gradual withdrawal of policy stimulus and avoid \u201cinaction bias\u201d and keeps its sights set on the 12\u201324-month outlook rather than responding to near-term pandemic developments. Certainly, was it not for the rapid rate of Omicron spread at present in the UK, after Tuesday\u2019s strong jobs report and Wednesday\u2019s hot CPI, a 15bps rate hike would be an absolute certainty on Thursday.<\/p>

Increased speculation about a potential hike is offering GBP some support this morning the currency is one of the better performing G10 majors on the day, though GBP\/USD<\/a> is only about 0.1% high on the session and still within recent ranges close to the 1.3250 mark. More broadly, FX markets are unsurprisingly subdued ahead of this evening\u2019s Fed policy announcement, with EURUSD<\/a> also up 0.1% on the session but also within recent ranges just to the south of 1.1300 and USDJPY<\/a> subdued just to the south of the 114.00 level. The Aussie is the outperformer this morning despite a drop in December Consumer Confidence according to the latest survey by Westpac amid a continued rise in Covid-19 cases, particularly in New South Wales, with AUDUSD<\/a> up 0.4% after bouncing at the 0.7100 level. According to Westpac, \u201cwith the Fed set to execute on its hawkish pivot, announce a more aggressive taper, deliver a set of dots that indicate several rate hikes next year and possibly discuss balance sheet retirement, the US$ should hold onto recent gains\u2026 (and) we still see the A$ decline extending below $0.7100.\u201d<\/p>

Day Ahead<\/strong><\/p>

The Fed policy announcement (interest rate decision and statement) is out at 1900GMT, to then be followed by Powell\u2019s press conference which kicks off at 1930GMT. Ahead of that, Canadian Housing Starts data for November is out at 1315GMT and shouldn\u2019t move FX markets. US November Retail Sales data is out at 1330GMT and would only move markets in the case of a big surprise. Canadian November CPI is out at the same time and the Loonie<\/a> could be a little twitchy like GBP was on UK CPI data this morning. Official US oil <\/a>inventory numbers at 1530GMT will be watched by oil traders and then BoC\u2019s Macklem will speak at 1700GMT.<\/p>\t\t\t\t\t<\/div>\n\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/section>\n\t\t\t\t\t\t\t\t\t<\/div>\n\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t","protected":false},"excerpt":{"rendered":"

Market Update US equities were under selling pressure during Tuesday\u2019s session, with the S&P 500 eventually closing down 0.75% in the 4630s as traders favoured caution against the backdrop of a still very uncertain outlook amid the global spread of Omicron. A much hotter than expected US PPI report for November, which saw the headline […]<\/p>\n","protected":false},"author":3,"featured_media":19705,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":[],"categories":[9],"tags":[42,470,101,279],"yoast_head":"\nAll eyes on the Fed as crucial hawkish pivot anticipated - Youtrading UK<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/youtrading.com\/en\/all-eyes-on-the-fed-as-crucial-hawkish-pivot-anticipated\/\" \/>\n<meta property=\"og:locale\" content=\"en_GB\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"All eyes on the Fed as crucial hawkish pivot anticipated All eyes on the Fed as crucial hawkish pivot anticipated\" \/>\n<meta property=\"og:description\" content=\"US equities were under selling pressure during Tuesday\u2019s session, with the S&P 500 eventually closing down 0.75% in the 4630s as traders favoured caution against the backdrop of a still very uncertain outlook amid the global spread of Omicron.\" \/>\n<meta property=\"og:url\" content=\"https:\/\/youtrading.com\/en\/all-eyes-on-the-fed-as-crucial-hawkish-pivot-anticipated\/\" \/>\n<meta property=\"og:site_name\" content=\"Youtrading UK\" \/>\n<meta property=\"article:publisher\" content=\"https:\/\/www.facebook.com\/YouTradingEnglish\/\" \/>\n<meta property=\"article:published_time\" content=\"2021-12-15T12:48:00+00:00\" \/>\n<meta property=\"article:modified_time\" content=\"2021-12-15T23:56:47+00:00\" \/>\n<meta property=\"og:image\" content=\"https:\/\/youtrading.com\/en\/wp-content\/uploads\/2021\/12\/gettyimages-1300622283.jpg\" \/>\n\t<meta property=\"og:image:width\" content=\"800\" \/>\n\t<meta property=\"og:image:height\" content=\"500\" \/>\n\t<meta property=\"og:image:type\" content=\"image\/jpeg\" \/>\n<meta name=\"author\" content=\"Joel Frank\" \/>\n<meta name=\"twitter:card\" content=\"summary_large_image\" \/>\n<meta name=\"twitter:title\" content=\"All eyes on the Fed as crucial hawkish pivot anticipated All eyes on the Fed as crucial hawkish pivot anticipated\" \/>\n<meta name=\"twitter:description\" content=\"US equities were under selling pressure during Tuesday\u2019s session, with the S&P 500 eventually closing down 0.75% in the 4630s as traders favoured caution against the backdrop of a still very uncertain outlook amid the global spread of Omicron.\" \/>\n<meta name=\"twitter:label1\" content=\"Written by\" \/>\n\t<meta name=\"twitter:data1\" content=\"Joel Frank\" \/>\n\t<meta name=\"twitter:label2\" content=\"Estimated reading time\" \/>\n\t<meta name=\"twitter:data2\" content=\"5 minutes\" \/>\n<script type=\"application\/ld+json\" class=\"yoast-schema-graph\">{\"@context\":\"https:\/\/schema.org\",\"@graph\":[{\"@type\":\"Article\",\"@id\":\"https:\/\/youtrading.com\/en\/all-eyes-on-the-fed-as-crucial-hawkish-pivot-anticipated\/#article\",\"isPartOf\":{\"@id\":\"https:\/\/youtrading.com\/en\/all-eyes-on-the-fed-as-crucial-hawkish-pivot-anticipated\/\"},\"author\":{\"name\":\"Joel Frank\",\"@id\":\"https:\/\/youtrading.com\/en\/#\/schema\/person\/ac77fbbe0e8ed23d3dce1372e3663b96\"},\"headline\":\"All eyes on the Fed as crucial hawkish pivot anticipated\",\"datePublished\":\"2021-12-15T12:48:00+00:00\",\"dateModified\":\"2021-12-15T23:56:47+00:00\",\"mainEntityOfPage\":{\"@id\":\"https:\/\/youtrading.com\/en\/all-eyes-on-the-fed-as-crucial-hawkish-pivot-anticipated\/\"},\"wordCount\":1064,\"publisher\":{\"@id\":\"https:\/\/youtrading.com\/en\/#organization\"},\"keywords\":[\"Fed\",\"Hawkish\",\"Inflation\",\"USA500\"],\"articleSection\":[\"Insights\"],\"inLanguage\":\"en-GB\"},{\"@type\":\"WebPage\",\"@id\":\"https:\/\/youtrading.com\/en\/all-eyes-on-the-fed-as-crucial-hawkish-pivot-anticipated\/\",\"url\":\"https:\/\/youtrading.com\/en\/all-eyes-on-the-fed-as-crucial-hawkish-pivot-anticipated\/\",\"name\":\"All eyes on the Fed as crucial hawkish pivot anticipated - 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