S&P 500 fails to hold Friday gains above 3900, 3860 support eyed. FOMC decision on Wednesday looms with 75 basis points expected. US nonfarm payroll data on Friday ends a week full of event risk.
US equities sit firmly in negative territory to begin the week as traders look to Wednesday’s key FOMC policy decision. Markets are expecting another 75 basis points from the Federal Reserve, but attention will focus on any potential clues for upcoming meetings. Over recent weeks, traders have pulled back expectations for the Fed’s terminal rate following smaller-than-expected hikes from the Reserve Bank of Australia and the Bank of Canada.
With the mega cap tech earnings behind us, the debate surrounding the future path for risk assets shifts back to central bank policy and economic data. Besides the “super bowl” of central bank meetings, this week sees PMI data and nonfarm payrolls for October to round out the week. The NFP print may garner significant attention following the Fed meeting, as it may set the tone for market pricing of the Fed’s terminal rate.
The market continues to buy the idea of a Fed pivot, but Powell continues to push back. With no clear data to show inflation rolling over or the labor market easing slightly, a truly “data dependent” Fed has no choice but to continue along with their tightening campaign. Markets may swing violently into and after the meeting should we experience a volatile repricing of the Fed’s terminal rate, which now sits back below 5%.
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