📆 The FOMC decision will be published at 6pm GMT and is the key event of the week!
Over the past weeks, the number one topic has undoubtedly been central banks. Investors are now wondering whether, after a cycle of interest rate hikes around the world, the markets are approaching the so-called Pivot, i.e. a slowdown in the pace of such rapid tightening and a turnaround in the rhetoric of central bankers. Today it's time for the Fed. The FOMC will decide on rates at 6pm GMT, and the decisions and comments from this event will project market sentiment over the next few weeks. Let's look at the key points to better prepare for the event.
FOMC will raise rates
Start investing today or test a free demo
Create account Try a demo Download mobile app Download mobile appA hike at today's meeting is more than certain. The market is currently discounting a 75 basis point hike at today's FOMC meeting. This path also seems to be confirmed by swaps, which indicate a near 100% chance of a 75 basis point hike. What does this mean? The market is set for a decisive Fed action, with little chance of a sudden turnaround.
Analyst consensus. Source: Bloomberg
Current valuation of the future path of interest rates in the US. Source: Bloomberg
The market seems convinced that a 75 bps hike is already fully priced in, so investors' attention will mainly focus on Powell's conference at 7:30 p.m. Analysts assume that today's potential 75 bps hike will be the last of this magnitude, so the number one topic when it comes to interpreting today's decision will be hints about the December FOMC meeting. Keep in mind that any mention of an actual slowdown in the pace of hikes could spawn speculation about a lower target rate (terminal rate).
How will the market react?
Looking at the way the S&P500 index traded 1 hour after the decision, we note that the index seems to confirm that Powell's comments are the most significant for the market.
Source: Bloomberg
A look at the markets before the decision
US500 futures are posting moderate gains this morning and are trying to make up for yesterday's session losses. We are seeing a slight increase in US 10-year yields, although for now it is still too small to indicate a definite trend. Of course, it is worth remembering that statistically the US500 gained during the month in which the US midterm elections took place. On the other hand, if the Fed stays with its current rhetoric and does not change its stance on further balance sheet reduction, it could mean that the current rebound is another correction in the main downtrend. Source: xStation 5
The content of this report has been created by XTB S.A., with its registered office in Warsaw, at Prosta 67, 00-838 Warsaw, Poland, (KRS number 0000217580) and supervised by Polish Supervision Authority ( No. DDM-M-4021-57-1/2005). This material is a marketing communication within the meaning of Art. 24 (3) of Directive 2014/65/EU of the European Parliament and of the Council of 15 May 2014 on markets in financial instruments and amending Directive 2002/92/EC and Directive 2011/61/EU (MiFID II). Marketing communication is not an investment recommendation or information recommending or suggesting an investment strategy within the meaning of Regulation (EU) No 596/2014 of the European Parliament and of the Council of 16 April 2014 on market abuse (market abuse regulation) and repealing Directive 2003/6/EC of the European Parliament and of the Council and Commission Directives 2003/124/EC, 2003/125/EC and 2004/72/EC and Commission Delegated Regulation (EU) 2016/958 of 9 March 2016 supplementing Regulation (EU) No 596/2014 of the European Parliament and of the Council with regard to regulatory technical standards for the technical arrangements for objective presentation of investment recommendations or other information recommending or suggesting an investment strategy and for disclosure of particular interests or indications of conflicts of interest or any other advice, including in the area of investment advisory, within the meaning of the Trading in Financial Instruments Act of 29 July 2005 (i.e. Journal of Laws 2019, item 875, as amended). The marketing communication is prepared with the highest diligence, objectivity, presents the facts known to the author on the date of preparation and is devoid of any evaluation elements. The marketing communication is prepared without considering the client’s needs, his individual financial situation and does not present any investment strategy in any way. The marketing communication does not constitute an offer of sale, offering, subscription, invitation to purchase, advertisement or promotion of any financial instruments. XTB S.A. is not liable for any client’s actions or omissions, in particular for the acquisition or disposal of financial instruments, undertaken on the basis of the information contained in this marketing communication. In the event that the marketing communication contains any information about any results regarding the financial instruments indicated therein, these do not constitute any guarantee or forecast regarding the future results.