From Marc to Market:
Overview: Better US news from the likes of Google, Microsoft, and Texas Instruments has helped lift sentiment today and encouraging a more risk-on mood ahead of the FOMC meeting. News that US President Biden and China’s Xi will talk tomorrow for the second time this year may be notable but does not appear to be impactful in the capital markets. China’s CSI 300 and the Hang Seng were exceptions to the general advance of equities in the Asia Pacific region today. Europe’s Stoxx 600 that slipped less than 0.05% yesterday is almost 0.45% higher today. If these gains are maintained, it would be the seventh advance in nine sessions. US futures are 1.0%-1.5% higher, while the 10-year Treasury yield is hovering around 2.80%. European benchmark yields are mostly 3-5 bp higher, Italian bonds are selling off harder. The US dollar is softer against the all the major currencies. The Norwegian krone is the strongest, gaining almost 0.9%, followed by sterling, nearly 0.4% better. The Antipodeans are the laggards, up around 0.10-0.15%. Emerging market currencies are not faring as well, though the rand, a handful of central European currencies, the Mexican peso, and Chinese yuan firmer.
Gold has steadied (~$1720-$1725), after slipping in the past two sessions, though it is a third day of lower highs. September WTI is slightly firmer (~0.30%). It fell nearly 1.8% yesterday. US natgas is higher for the fourth consecutive session. It is reached its highest level yesterday since 2008 (set near $9.75). Europe’s benchmark jumped 14.75% yesterday and is up another 2.25% today. It is the sixth consecutive advance, during which time it has risen by more than a third. Iron ore prices extended their advance for a fourth consecutive session and are approaching the month’s high. September copper is also rising for a fourth session. It is up around 10% from the mid-month lows. September wheat is edging higher to bring this week’s rise to nearly 6.5%....*****....AmericaWhile there is some uncertainty around it, the market is generally looking for a 75 bp hike by the Fed today, the second in a row. The 150 bp hike in two months is the most aggressive pace in a bit more than 40 years. The Fed funds futures has a slight leaning (~14%) toward 100 bp rather than a smaller move. Chair Powell is also likely to reiterate that 75 bp increments are unusual, and most look for a 50 bp hike in September followed by two quarter-point moves in Q4. The FOMC statement is likely to acknowledge that the Fed's course has been successful, and that economic activity has moderated. Core CPI and average hourly earnings have slowed for three consecutive months. The labor market, still robust, is also cooling. The interest rate-sensitive housing market is also losing some momentum. From the Fed's point of view this is all desirable. The Chair may be questioned about whether the US is in a recession, which the Fed, like Treasury Secretary Yellen, will deny, even if some Econ 101 definition of a recession is trotted out. More importantly, he ought to be asked about the market pricing out a hike in next year and instead is beginning to price in a cut (the implied yield of the June 2023 Fed funds futures is 19 bp below the implied yield of the December 2022 contract), and a total of 55 bp of cuts next are pricing into the futures strip.....
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