Macro Digest: FED FOMC December hike? Not so fast! Clinton=hike, Trumpt=no change

Trading strategy and risk into US election….

 

 

·         FED remains 78% likely to hike in December

·         Clinton remains 78% favorite to win on Tuesday (wrong probability relative to momentum, but you know my take)

 

·         FED will hike w. President Clinton

·         FED will not hike w. President Trump

 

That's the conclusion……which of course makes 'a good Trump run' into Tuesday EXTREMELY dangerous for volatility and liquidity….

 

I see "lack of liquidity" into close of polls in the US (We expect 0300 am CET ish to be time of good indication) as the bigger risk.

 

·         S&P futures could be limit down as they were on Brexit night (present limit down is 1958 – on 2095 spot in S&P E-mini futures

·         USD cross should "theoretically" maximum move 3-5% but considering the odds above plus illiquidity we could be looking at 5-8% intraday, but much lower expected Open/Close levels.

 

 

The slides done by John Hardy is EST – add 6 (six) hours to all times in slide….to get to CET….

 

 

 

 

 

I have been looking at FOMC's statement from October 2015 (the similar meeting to tonights..) to see "how bullish" Fed was leading into the December 2015 hike …..and… I was rather disappointed….

 

….'economic activity has been expanding at a moderate pace'…

…'net exports have been soft' (the stronger USD)…

… "Inflation has continued to run below the committee's longer run objective, partly reflecting declines in energy prices and in the prices of non-energy imports…..

 

Tonight text:

 

…'indicates that the labor market has continued to strengthen and growth of economic activity has picked up from the modest pace in first half of this year'

…'inflation has increased somewhat since earlier this year but is still below the Committee's 2 percent long-run objective…

 

 

Overall the text points to higher growth but keep inflation (or lack of it..) as potential excuse for buying more time in December – the tone is more bullish this time than in meeting preceding hike in December 2015.

 

FULL text(2016): https://www.federalreserve.gov/newsevents/press/monetary/20161102a.htm

 

 

Information received since the Federal Open Market Committee met in September indicates that the labor market has continued to strengthen and growth of economic activity has picked up from the modest pace seen in the first half of this year. Although the unemployment rate is little changed in recent months, job gains have been solid. Household spending has been rising moderately but business fixed investment has remained soft. Inflation has increased somewhat since earlier this year but is still below the Committee's 2 percent longer-run objective, partly reflecting earlier declines in energy prices and in prices of non-energy imports. Market-based measures of inflation compensation have moved up but remain low; most survey-based measures of longer-term inflation expectations are little changed, on balance, in recent months.

 

FULL text (2015)

 

Release Date: October 28, 2015

For immediate release

Information received since the Federal Open Market Committee met in September suggests that economic activity has been expanding at a moderate pace. Household spending and business fixed investment have been increasing at solid rates in recent months, and the housing sector has improved further; however, net exports have been soft. The pace of job gains slowed and the unemployment rate held steady. Nonetheless, labor market indicators, on balance, show that underutilization of labor resources has diminished since early this year. Inflation has continued to run below the Committee's longer-run objective, partly reflecting declines in energy prices and in prices of non-energy imports. Market-based measures of inflation compensation moved slightly lower; survey-based measures of longer-term inflation expectations have remained stable.

FED December hike probability:

 

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