Fed Does Not Rule Out Hiking At EVERY FOMC Meeting!

Okay, hi everyone, thought I'd quickly jump on. We just had this statement announcement come out from the FOMC and I wanted to share my ladders, my trading screens, to talk you through it. So I'm looking at the NASDAQ 100 here and we have moved quite sharply higher on the back of these latest comments as they've come out. So a couple of things they've not hiked rates. There was a very, very small outside chance that they might have done so if they were really panicked about inflation and they thought that the employment situation was really heading in the right direction sooner rather than later. They've kind of gone halfway there, and that's much more in keeping with market expectations. And that is the fact that they've said that it will soon be appropriate to raise the federal funds rate soon. And that's very much in keeping with what general consensus was, was that gives the hint towards a March hike. So the outside prospect of going immediately is not there. They are hinting though that they will hike rates more in the future going forward. Now, a couple of the other comments they said was the balance sheet shrinking to start after rate hikes commence, largely in keeping with what we were expecting. They'll complete their monthly bond buying taper in early March, again as per the timelines they said it will. Uh, US economy is continuing to improve, but pandemic is weighing on activities. So a slightly dovish comment there. Initially here in the Nasdaq, we've seen prices jettison higher quite aggressively. And a lot of that, I think, is down to the fact that markets were leaning in their positioning in a very hawkish manner given what's been happening and creating this anxiety over yields since the beginning of this year. And it's really pressured stocks in general, but in particular tech growth-related names, and hence the reason why bit of a short-term initial knee-jerk relief, I would kind of classify it in terms of this initial move here that we've seen in the NASDAQ. Just pivoting over and having a look at some of the other charts quickly, you can see here on the left, that's the NASDAQ ladder here. So still firing off pretty rapid at the moment. Gold, um, bit of two-way price action. There's nothing particularly here that has been surprising. And so you've had two-way price action, initially blip higher, the fact that there wasn't an initial overtly hawkish element within this. And so we popped higher and then we've come back down again and we're pretty much where we were trading prior to the announcement. You can see respecting that relative range. And that's largely what happened in the currency markets. Initial blip higher in EURUSD on the back of dollar weakness initially, but the dollar is restrengthening now a touch and that is pressuring EURUSD a little bit. So worth keeping an eye on that previous intraday low we printed there down at 128— uh, 112.82, excuse me. As far as T-notes are concerned, yeah, starting to see a little bit of downside, but very moderate, you would say, given what actually has occurred. Because if anything, this is just in keeping with what the Fed have been communicating through various Fed speeches from Jerome Powell and his colleagues towards a slight pivot towards becoming more aggressive with their rate hiking cycle. So Yeah, we'll continue to stay tuned, but all fairly in line with what we were expecting, um, going into this event. So one of the other quite interesting comments here was the committee expects the reducing the size of the Federal Reserve's balance sheet will commence after the process of increasing the target range for the federal funds rate has begun. The committee intends to reduce the Fed's security holdings over time in a predictable manner primarily by adjusting the amounts we invested, the principal payments and so forth. So yeah, it's, it's what really that we were looking for, which was this idea of them kind of moving towards a more hawkish direction with policy. It's just that markets were leaning quite far in that direction, almost overexacerbated by some of the market reaction or movement that we've seen both earlier this week and also last week that has seen the likes of the Nasdaq, of course, and the S&P 500 move into official correction. Territory. So I'd say really at the moment, yeah, not surprising, I don't think, to see equities, um, liking this and moving in a positive fashion. And the rest of the other asset classes are relatively unchanged because it's really been the equity space that's been the focal point given the type of market speed that we've seen of this downward movement we've had of late. I mean, if I just pop this onto a 90-minute candlestick on the NASDAQ you can see really the direction of travel here going all the way back to the 13th of the month. This really was as the market has been— well, I say the 13th of the month, look at where we were at the beginning of the year and look where we are at the moment. So from a percentage point of view, if I just bring up my currency tool here, from where we were trading on the 4th of the year to where we were trading literally just the other day, in fact on Monday, We're down about 17.25% in the Nasdaq. So I think unsurprising, you know, if you follow our newsletter, if you don't sign up, AmplifyMe.com/market-maker. It's exactly what we were talking about. This idea of not that the Fed were going to come out and be sensational or say anything untoward, but because of the way the markets are priced, there could be potential for some upside in equities. And that's what we're seeing just materialize at the moment. Short-term relief that there wasn't a step further that they've gone. And then the other asset class is much lesser reactive, given that again, it's, it's pretty much in line with what we were seeing or what the Fed was saying. Okay, don't forget then that we're going to have the press conference with Jerome Powell just in a moment. And of course, everyone's going to be kind of looking to pressure him on more detail around this shrinkage of the balance sheet, timing, what would be the composition and speed of that type of move. That could be integral then to the second potential kind of catalyst for a subsequent market move here. So looking out for the press conference, I'll keep you updated. Okay, just checking back in on the charts and the equity index futures. Now we've gone 13 minutes past the initial statement, have already pulled back, and that's pretty much replicated across every asset class. So now I've got EURUSD top left, Cable here, and the Dow future on Everything's reverted back to— nearly all asset classes are trading back to point zero of where they were, scratch from prior to the release. So one could argue, at least at this point, still press conference pending, that the Fed have done a relatively good job at keeping any market impact contained. They've really executed on what their forward guidance and communication going into the— before the blackout period was suggesting. And so yeah, we look to the press conference really for any added detail, anything else. But so far not too much of a great surprise, but still much to play for. Again, I'll jump back on when the press conference gets underway. Press conference is still yet to start, but I thought I'd quickly make a comment on an interesting tweet that I saw from a macro strategist. And he was talking about, or mentioning, the idea the Senate panel yesterday announced there to hold a 3rd of February hearing on Raskin, Cook, and Jefferson. And these are the new candidates potentially to fill the empty slots on the Fed. And there's a very good chance that Biden's— and these selections are Fed doves, so much more of the idea of pushing back against an acceleration of things like shrinking the balance sheet and more faster rate rises. They could actually be in by the FOMC meeting. Obviously, this would need to go through lots of congressional approval and things of that nature, But the next March meeting is not until the 16th. So a little bit of time to run there by the time of which is a really important meeting for the Fed because of course that's when their next summary of economic projections is out. And so we get the new dot plot and other economic forecasting, but also that's when they're going to lift rates for the first time. And obviously by then we'd be looking for much more explicit information about then what they're going to do with the balance sheet. Thereafter. Of course, there will be lots of communication in between those meetings, but yeah, an interesting observation to be aware of. The Fed could be equipped with other Fed doves which could move the conversation a little bit around this idea of balance sheet tightening. Just back to the charts momentarily, uh, press conference will start any moment, but as you can see from the charts, broadly back to where they were resting before the release. So exiting out that gyration in price. Now it's about waiting for the press conference to begin. This really is part of the art of trying to navigate one of these major intraday kind of events, is that it's very— you've got to be very, I guess, disciplined in looking for opportunity. And as you saw on those ladders when I first shared, they were jumping all over the place. So it's super important to really strategize, have your scenarios built in advance of time, looking to identify then more of an outlying situation and taking advantage of that materialized. And what we saw really was not enough of a deviation away of what markets were expecting. So although there was a momentary move, it was so whipsaw and price action would have been very hard to execute over that. If you were ever interested to know what does this actually look like on a Bloomberg terminal when the news breaks, this is what it would look like as headlines. So typically then they will drop a whole batch of comments, but keep some major ones at the top, and subsequently it's almost like a first in, first out type reaction. So let me just pivot my screen. So these would be the Bloomberg headlines that dropped, and the top 3, as you can see kind of here, are like this, what we call the stickies. And so markets will react to those, those first. So as we heard earlier, will be appropriate to raise rates soon, asset purchases to conclude in early March, balance sheet shrinking to start after rate hikes. Commence. Just thought I had to give a shout out to the Fed website. This is the holding music waiting for the audio from the press conference to start. So, uh, feeling nice and peaceful now, waiting for the main event to hit. Um, should just be coming on now. Okay, the way the press conference typically works is he will reading open statement And then that normally takes about 10, 12 minutes, and then they'll go into a Q&A. The first questions in the Q&A are often the most important and the ones that markets are most sensitive to. So keeping our wits about us now, and we'll look at the charts and looking out for any comments on the balance sheet. Powell now beginning. We are strongly committed to achieving the monetary policy goals that Congress has given us: maximum employment and price stability. Today, in support of these goals, the Federal Open Market Committee— okay, I'll keep you posted if he says anything. Okay, one thing that's quite interesting that he said here is that Omicron is expected to drop off rapidly, and that should then have a subsequent impact in the economy to become kind of active again. So that would be slightly leaning in a hawkish direction. However, he did balance that out with saying, look, it's still something that they're monitoring at this point in time. A few more important points to add here. He said the improvement in the labor market has been wide spread, and also said inflation remains well above our long-run goal. We are seeing the US 10-year yields touch on their highest levels at the moment, so high yields, and starting to see a little bit of pressure coming in the equity index futures. Powell also said higher inflation now spread more broadly. A lot of this is not new information, but certainly is a slightly more on the hawkish side. So seeing a little bit of reversal. This is the Dow future These are very small moves, really, in context, but coming back down toward a near-term level of support from this afternoon, which was the relative highs that we saw in the APAC session. So keeping an eye there, 34257 in the Dow. The Nasdaq's also reverted course from that initial statement release. So where we blipped higher, we're now trading a little bit back toward where we were earlier. Again, looking at the R1 in the futures and that low in the afternoon as an area of support on the downside. So a little bit of a move lower. T-notes, as you can see in the bottom right-hand corner, so yields and dollar and equities all moving a little bit lower. So this would be indicative now of a little bit more of a hawkish takeaway from what we've— he's just been saying here about the labor market, about what's happening with Omicron, um, and also the inflation situation. So as yields move up, subsequent dollar strength is starting to weigh on some of these currency pairs. The EURUSD, you can see here, now challenging that early afternoon low that we printed. Cable following suit, again all driven by strength in the dollar. The DXY now at session highs, and the dollar index is now trading up 1/3 of 1%. Okay, he's just concluding the opening statement, and he said that they have not made decisions on the timing and pace of shrinking the balance sheet. Most would probably take that as quite a dovish comment. And the reason for that is that people were assuming that they'd already progressed so far enough that that could happen very soon. The fact that they're still yet to determine a lot of the parameters on the timing and pace means then they're basically keeping their options open. And, and that has delayed then the aggressive pricing and expectations the market has had. So, You can see here immediately the dollar pulled back. Eurodollar has sprung back up here quite aggressively. That's reflected in cable. Nasdaq has also bounced exactly on that comment. So any of that initial weakness there as he was speaking is quickly reversed on that comment, as the 10-year still remaining lower, but that downward move on that push higher in yields has just stopped on the back of that latest comment. So again, Powell said the Fed has yet to decide how and when the balance sheet will be reduced. That's a big comment. Okay, as he takes questions, we are seeing continued fluctuation here, um, equity, FX markets, but we are seeing yields still remain at their higher levels. And gold also worth just keeping an eye on here now as we just retest down around that initial volatility low that we printed. If we break down here in gold, I'm just having a look here at next levels of interest. So 1823, you can see here, was the top that we saw towards the back end of— or middle and back end of last week. Any breakdown of there could trade quite quickly, more heavy, down to that spot of those brief highs we had back on the 18th and before the breakout up that we saw back on the 19th. So as you can see here, straight through 23 So expect quite a quick run here, as you're seeing, down to $1,820. Beyond that point, probably I'll be keeping an eye on $1,500 and then down towards the low that we saw back on the 18th. So yeah, continuation gold, you can see it should be a synchronized move really. If yields are moving consistently and we're seeing gold move lower, you would be looking for further dollar appreciation, and you are starting to see that a little bit now. EURUSD, despite that quick bounce on the balance sheet comment. What Powell has said here is doesn't rule out raising rates at every FOMC meeting. So just to reiterate, Powell's just said he does not rule out raising rates at every FOMC meeting. That's a bit of a, bit of a shocker there in terms of on the hawkish side. And that's what's instigating now this renewed move in yields. So yields, you can see here, T-notes just flew off the charts there on that comment. And that's, that's quite a big one. And that's going to promote then weakness in gold and the dollar pairs as the dollar is going to really kick on from here, most likely. So the Nasdaq and equities probably will not like that comment either. So you can see FX now trading with a little bit more weight. We've just broken through the intraday and yesterday's low. As the Fed kind of push off this idea that, look, we're going to hike 4 times. If they're going to hike every meeting, of course, that leaves lots of options further down the line for, for subsequent meetings beyond just doing the 4. And just for the record, there are, as you can see here, is 8 FOMC meetings in a given year. The fact that we've already had this one we're anticipating the hike in March. That leaves 7, of course, remaining meetings. So when he made that comment, comes in the context of nearly every meeting could be live then, and hence then this kind of hawkish reaction that we, we've just seen. Yeah, ever since that comment, everything started to really pick up a bit of pace here. So the dollar index is now trading up. At around 0.5%, just bringing the NASDAQ and gold back in on the, on the ladders to see some of the market volatility here coming through on the tape. You can see quite heavy selling pressure now starting to pick up a bit of momentum in the NASDAQ as it breaks through that previous low in the R1 on the futures. So just looking to potentially open up a bit of a deeper move here down to that low that we printed, um, earlier in the morning when Europe came into the market, really to hold that type of short-term short position, would want to see gold, um, and T-notes continuing to remain, um, kind of in terms of the yield play, yields remain bid. So a bit more continuation of that to just give that greater conviction of that move. So yeah, NASDAQ still trading a little heavy here. You can see it's under pressure. Let's just keep it up on the screen for a moment. And obviously it was that comment there that Powell said about not raising, not ruling out raising rates at every meeting, it's kind of sparked this latest move. And the, the NASDAQ being the one to kind of watch over the major 3 US indices, given the sensitivity to the yield and rate environment, particularly for those tech and growth names. Okay, we're still in the Q&A at the moment. One of the guys from Reuters asking a question, but a good take here that I've seen, which I think is absolutely on point, point is that Powell has twice made the case for tightening faster than in the last cycle, i.e., that's more than every other meeting, without explicitly endorsing it. So this is the kind of nuanced nature of Fed communication. It's kind of hinting towards the, the faster tightening cycle without endorsing it to the point you're committed to it. So certainly has come as a bit of a surprise, but we'll continue to stay tuned. Okay, so just want to really wrap things up. The Q&A is still ongoing, but I think for the purpose of just kind of understanding really what a Fed announcement looks like, this was a pretty good example. So a lot of two-way price action, and this initially it was almost like a relief. So NASDAQ, as we saw, equities moved higher, dollar initially blipped lower. That was supportive of, say, things like the currency pairs and also for gold futures. Now, the predominant reason for that was because really of the market's overarching hawkish expectations about how it's positioned for the Fed. They did come through. They've, they've not changed interest rates. So there was obviously a minor chance of that happening, very unlikely that didn't happen, but they've kind of hinted towards the necessary statement changes that they're going to hike rates. And the press conference really does legitimize that idea that rates will rise in March. As far as the balance sheet was concerned, really lack of details. If anything, they've still yet to determine the, the kind of timing and how exactly they're going to do that. They said that they're going to give more information at the appropriate time. They're also going to discuss that in more detail at the next meeting. But then the shocker kind of came towards the end, was Powell did not rule out raising rates at every meeting, and that does then include 7 meetings now for the rest of this year. And that was a little bit more of a surprise that had continued the yield move that we were seeing. So overall, that probably latter part was the standout, um, I would say. Everything else was largely in fitting with the Fed forward guidance communication going into the event. So overall, at least for now— we'll see what this looks like later on, but I've done this as it's happening— stocks are down, yields are up, and the dollar is firmer. So the currency pairs down, Stocks down, gold down, T-notes down. This is all from a policy perspective towards— then the Fed is serious about tackling inflation. The labor market is there. Omicron isn't providing the type of risks that now deteriorate from the economic activity in the future, all things remaining equal. They did say they'd be data dependent. And so the risks are there that at the moment this is a staging meeting for the rate lift in March. But they could go further. They haven't said that they will, they haven't committed, but that's on the table. And that's why we've had what I would call a moderate hawkish reaction in the initial aftermath. So again, don't forget to like and subscribe to the channel, hugely appreciate it. If you're new here, more videos like this coming out soon. I did a really great, uh, conversation with a very senior portfolio manager earlier today. I'm going to share that tomorrow on the channel, so stay tuned. All right, take care.