Markets didn’t do especially much yesterday.
I was rather thankful for this, given that I can measure in seconds the time I spent in front of my Terminal on Monday.
In any case, this sort of price action is rather typical for the day or two prior to an FOMC meeting, and the rather soggy vol seen was, of course, exacerbated by the hefty expectations that market participants have going into this week’s decision (in short, a 75bps hike, and perhaps signal of a third mega hike running in September).
Given that environment, I struggle to turn bullish on riskier assets, especially equities. I was asked over the weekend whether I think the bottom is in; I do not, and will struggle to do so unless/until the Fed make a dovish pivot. That’s not coming any time soon.
Perhaps the simplest way to sum up the current predicament is as follows – monetary policy is tightening quicker than thought, as growth slows more steeply than expected.
What do you want to own in that environment? For me, there’s only one thing; the mighty dollar. I’d expect the recent USD bull trend to resume relatively soon – month-end is in the mix as well, of course – especially if Wednesday night brings an ‘autopilot’ Fed that the market will inevitably interpret as more hawkish than it really is.
The DXY being taken on a trip back north of 108 before the week is out seems reasonable to me.
I’ll leave things there for today, as I have little else worth saying. Yesterday was a snoozefest, and today looks likely to be one too, judging by the calendar, unless Google (I refuse to ever call them Alphabet) earnings after the bell float your boat.
Make the most of the opportunity to kick back, before the fireworks begin on Wednesday evening.
No notable releases due.
I'd love to hear your comments, questions or suggestions. You can reach me on email at michael.brown@caxtonfx.com.
About the Author
Michael Brown is Head of Market Intelligence at Caxton, leading Caxton’s analysis, forecasting, and thought leadership within all areas of financial markets. He provides regular cross-asset market commentary and analysis, along with insight on market-moving macroeconomic events, being regularly quoted in national and international media. In addition, Michael leads on the inclusion and implementation of market research into Caxton’s data-led sales and marketing process. Away from Caxton, Michael is currently pursuing an Executive MBA at Cranfield University.