1:01 p.m. ET
A subscriber asked me a question earlier, the gist of which was whether Fed chair Jay Powell will try to talk the market down on Wednesday in what were previously unscheduled comments with the Nov. 30th date revealed last week. My answer was,
“He may very well try to do that to tighten financial conditions. When the market rallies, it loosens them (Financial conditions). Before the last rate hike, financial conditions were actually looser than the prior rate hike due to market gains.
The key will be the PCE report this week (Fed’s preferred measure of inflation) and the Jobs report Friday. If those come in softer than expected, it won’t matter much what Powell says at that point. The softer they are, the more the market will like them.”
Of course the opposite is true as well, but since the last FOMC meeting the CPI and PPI report showed that inflation came in much weaker than expected, and the last Jobs report was mixed with the politically goal-seeked Establishment survey coming in decent, but the Household survey coming in weaker than expected and the unemployment rate rising. It’s reasonable to think there’s a decent probability these reports come in weaker than expected (which the market will like).
We got Fed speak just a bit ago. St. Louis Fed president, Jim Bullard, said, “There is still a heavy degree” of expectations that inflation will go away naturally, in a webcast interview with MarketWatch and Barron’s.
Bullard added that the Fed “has a ways to go to get to”restrictive rates, adding that markets are underestimating the risk that the FOMC will be more aggressive and will have to go higher on rates in 2023. Of course this is the exact opposite of what San Francisco Fed President, Mary Daly, said last week when she suggested that financial markets were pricing in a Fed funds rate of around 6% rather than the 5% terminal rate estimate.
The reaction to Bullard was bearish, but modest (-0.3% drop in the S&P) and short-lived.
SP-500 (1m today)
And it didn’t do anything technically significant…
SP-500 (15m) trading inside the bullish ascending triangle.
We also got New York Fed President Williams (FOMC voter) who said “inflation is far too high”, according to Reuters.
The NASDAQ-100’s price action is also well contained within it’s bull flag and presently trading at the neckline of its inverse H&S base.
NASDAQ-100 (15m)
There wasn’t much of a move either in yields. Earlier the 2 and 10-year were down around -2 bp each now the Fed-sensitive 2-year is down -1 bp and 10-year is unchanged. The Dollar Index is higher by +0.37%, but not in reaction to the comments as it’s been trading off morning lows since just before 7 a.m. ET
In other words, the hawkish Fed-speak had very little reaction, and Bullard has been able to talk the market down numerous times over the past few months with these kinds of comments. I expect the averages will trade in these consolidations until we get several key economic reports this week starting tomorrow through Friday morning’s Payrolls report. We also may have some end of the month window dressing that plays some role, but more probable are these handful of economic reports that will have a direct impact on what the market prices in heading into the mid-December FOMC policy anouncement.