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Market Snapshot 9.21.22- Does Much More Need To Be Said?

Good morning on this best day of the week, Wednesday,

Fed Day. Does much more need to be said?

Well, there are lots of pundits out banging the drums this AM for sure. I am sharing a few excerpts below, but first want to set the table before the meeting so we can look back on it to see what the reaction was. Right now, the 2-yr Treasury note has topped 4% (first time since 2007), the 10-yr is at 3.57%.

Dan Rawitch shared:

“It always brings anxiety to the markets. While most everyone is expecting Powell to raise rates for the third consecutive time by 75 bps, we do not know for sure, and we do not have any idea what guidance he will provide for future increases. It would not shock me if he surprised us with a 100 bps rate increase, which could cause at least a short-term bounce in the market. For my two cents, I imagine we will see a hawkish Fed, at least as hawkish as we saw in Jackson Hole, and this could spark some more selling. For most meetings, we tend to see a sell-off after the Fed speaks, followed by a rally that later recovers the losses. This time may be different because the circumstances are unlike any we have seen. I would continue to play defense and prepare for the worst. That said, a recovery rally is overdue and could come anytime.”

From the WSJ:

The Federal Reserve is expected to approve its third consecutive interest-rate increase of 0.75 percentage point today as part of its campaign against inflation that is running near a four-decade high. Equally important will be the signals Fed officials send about how much higher they expect to raise rates, how fast they expect to do so, and what they expect the economic consequences to be. Read the WSJ’s preview here and follow our live coverage here.

Treasury yields rose to fresh multi-year highs on expectations the Fed will unveil more forceful monetary tightening to curb inflation this week. Ten-year Treasury yields rose to 3.571% from Monday’s 3.489%, setting a new closing high since March 2011. Yields on two-year notes, which are sensitive to the interest-rate outlook, climbed to 3.962% from 3.946% Monday, ending once again at their highest level since 2007, Joe Wallace and Matt Grossman report.

And from Bloomberg:

Hello and Happy Fed Day. The big question is whether they go 75 or 100 basis points, and at this point markets and most people seem to think it will be 75.

Stepping back for a second, the macro backdrop is that a lot of things are coming into place on the inflation front… except inflation.

Here’s a really messy chart of a bunch of lines that have gone down. It includes trucking costs, international shipping costs, gasoline prices, the ISM Prices Paid index, used cars, and Zillow’s measure of rent. It’s pretty clear. A lot of stuff that went up is now coming down.

The problem however, is that for all of the above, we haven’t seen it feed through to consumer prices. Here’s the Cleveland Fed’s Trimmed Mean Index:

The Fed has hiked a lot. Rates are way up basically by any measure. And again, a bunch of private sector measures of prices and activity have clearly rolled over. So the question at this point, for thinking about the appropriate pace of policy, is if and how much the top chart filters down into the bottom one.

What the Fed may focus on in today’s message…

This just out:

New York’s Attorney General filed a civil fraud lawsuit Wednesday against former President Donald Trump, his company and its leadership, following a three-year investigation into whether the Trump Organization falsely valued assets for economic gain. The suit, from Democratic state Attorney General Letitia James, follows a probe that began after Michael Cohen, Mr. Trump’s former personal lawyer, testified before Congress in 2019 that the then-president inflated and deflated his assets to obtain financial benefits from lenders, insurers and tax authorities. Court records show that in addition to Mr. Trump, the suit names as defendants three of his adult children—Donald Trump Jr., Eric Trump and Ivanka Trump—and two longtime company officials, Allen Weisselberg and Jeffrey McConney.

And just WOW! Look out, staggering number ahead. Chinese corporate debt stands at 29 Trillion! That is 2.5x the US Corporate Debt.  

Please remain safe and stay healthy, make today great!