Wednesday's Market Minute: Don't Call Today's FOMC A Non-Event

There's a consensus narrative building that today's FOMC decision is a non-event. Indeed, nobody expects there to be a move higher or lower in rates, but seeing how we're just two meetings removed from a series of cuts made to save the economy from an impending global recession, "non-event" is, if nothing but out of principle, a bit of a misnomer.

Moreover, Fed Chair Jay Powell should use today to try out some new material. Instead of the dovish lullaby he’s been singing all year, Powell very well may use the recent impressive domestic employment report and improving global manufacturing data to workshop some hawk-talk – and by hawkish, at this point, we mean anything that confirms there are no rate-cuts on the horizon. Sure, we already know he’s said no more cuts, but the key thing here is that certain sections of the market seem to be in denial.

Despite the distinct improvement in the world’s economic picture, ostensible progress between the U.S. and China, and an actual Brexit deal just a hop, skip, and an election away, investors have refused to relinquish their bunker assets. These are the safety trades of the summer when all was looking worse: bonds, gold, and their relatives in the stock market: utilities, low-vol funds, etc. The only bunker play so far to meaningfully break is bitcoin, but it was the one with the hardest story to fulfill to begin with.

But why have bonds and gold refused to follow suit? The possibility of a U.S./China breakdown may be one answer, but persistent activity by the Fed in the repo markets may be another. Watch for a barrage of questions to Mr. Powell today about his “not-QE” program, which some bulls appear to be trading as the opposite.

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