FOMC Preview - I’m back - and it’s a busy few days ahead!
Hello my faithful readers… I have returned from my holidays and truth be told feel even more tired than before I left! Always is the sign of a good holiday when you need another one straight after.
Well… I’m not actually back yet… but it’s FOMC day tomorrow so I’m typing up some stuff now in the air so that I can bring you timely and useful information!
Anyway, I’m trying to get caught up while at the same time look ahead so please do bear with me.
Quick Wrap Up since I’ve been away.
Crikey it looks like I’m the only thing holding up the market with the amount the S&P has cratered since I last posted. Thanks Evergrande. But now I’m looking again does look like we’ve had a bit of a recovery. Powell will of course be looking to the market which isn’t far away from a 5% pullback as a barometer of market sentiment and the readiness of markets to accept the taper.
In company specific news… my long-term followers will know that I’ve basically been a perma-bull on RDS since the start of the pandemic - it’s been a good call so far with my position up 50% or so. But I think we have firer to go - this morning RDS announced a gigantic dividend of 7bn to shareholders in a buyback.
For me this is great news - shares plunged last year in the back of a dividend slash for the first time since WWII and this caused a loss of management credibility. This shows that RDS wants to prove it has restored the balance sheet weakness and win back over some of the disgruntled shareholders.
FOMC Tomorrow - What’s Expected?
So lots of focus on tomorrow’s meeting for obvious reasons. Will they taper… or will they hold off for “just one more meeting”.
Looking at a few charts… SPX has caught a bid today and a bit of relief of pressure generally. I see tomorrow as largely being a boring day until the FOMC decision.
Watch out for the dot plot - if we start to see a significant move toward hikes now rather than later… this could spook the markets - the 10y yield would be the first to move in that case and the USD would get markedly stronger.
If we do get a taper announcement tomorrow, there is no question that Powell will attempt to dress it up as still easy money just slightly less easing than before.
This is important - remember that tapering is just a reduction of asset purchases per month and is not a reversal of asset purchases (I.e. asset sales).
What’s the trade?
For me play it safe until Powell starts to speak - then watch for a Mike McKee question in the Q&A - he’s usually last and they play elevator music in the background etc.
I would look to be short USD, I see further dovish commentary at this meeting as possible but I think the dots are going to be key.
Don’t be surprised to see the median first hike projection come forward.
Whatever happens… I think this meeting will be messy and I urge caution.
That’s all for the primer - sorry it’s short but it’s from 37000 feet. All the best and happy trading
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