Don't be caught off guard - FOMC will DISAPPOINT today. And here's why:
๐งตA thread
Two scenarios will play out (Repost and comment!)
๐งตA thread
Two scenarios will play out (Repost and comment!)
1) - CME Fed Watch yesterday was showing Wall Street forecasting (and pricing in optimism)
65% Chance of 50 BPS cut
35% Chance of 25 BPS cut
Today that is closer to 55/45
65% Chance of 50 BPS cut
35% Chance of 25 BPS cut
Today that is closer to 55/45
2) The S&P is comfortably sitting near ATH on this optimism, of the rarer chance that the rate cut will go from what's been 0, to significant (i.e. big bets on the unlikely event)
3) The problem is that CPI is improving, but inflation is not where Powell wants it to be (2%) just yet.
CPI Y/Y has one of the steepest declines in the last year to a cool 2.5%. Still high but getting better since the 2022 recession.
So this is the heavy optimism on the FED's actions today
CPI Y/Y has one of the steepest declines in the last year to a cool 2.5%. Still high but getting better since the 2022 recession.
So this is the heavy optimism on the FED's actions today
(Side note) FOMC Discount!
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4) At Jackson Hole Powell built a case that inflation is decreasing and they likely don't need to wait for their 2% target to begin making moves. But more importantly it is time to support job growth because of the muted jobs market right now (more on that)
But does that mean rate cuts will help this too?
But does that mean rate cuts will help this too?
5) JOLTS decreasing means 1 of 2 things, either jobs are being eliminated or they are being filled faster than they're being created. The former is bearish on the economy, the latter is just slightly bullish and means growth is around the corner, but slow now
Which is it? Read on!
Which is it? Read on!
6) The initial jobless claims are people qualifying and filing for unemployment that week - meaning they are laid off for non-performance related reasons (meaning the company is downsizing)
These are flat and around the normal of 200-300k/wk, so nothing alarming there (no major layoff spree), so this is good for the bullish job's market case.
But what about those already unemployed? (Read on)
These are flat and around the normal of 200-300k/wk, so nothing alarming there (no major layoff spree), so this is good for the bullish job's market case.
But what about those already unemployed? (Read on)
7) Continuing jobless claims, people filed for unemployment beyond the first week of claiming is also flat. And not higher than usual in a bull market (<2 million is normal) - so combining that with Initial claims and the JOLTS:
We're not in a hiring spree, explosive growth isn't imminent. We're not laying off so we're not necessarily eliminating jobs. Therefore we're in that "slow growth" phase where we're just outpacing hiring with job creation.
So growth is around the corner.
We're not in a hiring spree, explosive growth isn't imminent. We're not laying off so we're not necessarily eliminating jobs. Therefore we're in that "slow growth" phase where we're just outpacing hiring with job creation.
So growth is around the corner.
8) So will Powell cut rates? It's likely, but it's likely to meet and not exceed expectation. A 25 BPS cut is likely but that won't rally the market because the expectation is that we get 50 BPS. And when the market meets expectation rather than beat it, the effect is priced in and we sell off after the optimism in the first 5 min of the announcement.
So what will make the rally happen?
So what will make the rally happen?
9) The press conference 30 minutes after the initial announcement will be everything. We will listen for Powell to say *anything* about the plans for the next few months. If there is even a hint at progressive rate cuts in a single month or multiple months beyond today if we get one, will be catalyzed by election volatility, and we'll go up
Scenario 1
Scenario 1
10) Today's initial selling into the announcement is allowing the market to move lower to expect this rate cut to pop without causing a volatility event, market is giving it some room to move only. So it can likely sell when we don't hit expectations without causing a crash.
And if the press conference shows no action in 2024, we sell. Scenario II
And if the press conference shows no action in 2024, we sell. Scenario II
11) I'm a chemical engineer turned trader and CEO of the @RocketScooterAI trading platform. I stream on YouTube and I train thousands on how to read the markets and discover true probabilistic edge.
To an engineer - data matters! Not random market nonsense.
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To an engineer - data matters! Not random market nonsense.
Join us or learn more at rocketscooter.com
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