FOMC decision:
- FOMC doubles monthly taper pace $30 billion vs $15 billion prior
- Powell: Labor force participation has been disappointing
- Powell opening statement: Omicron variant is a risk but we still see rapid growth
- FOMC statement from the December 2021 meeting
- FOMC Dot Plot and Central Tendencies from December 2021
Other news:
- US November retail sales +0.3% vs +0.8% expected
- BOC's Macklem: Forward guidance side effect is that inflation likely above target after exit
- More from Macklem: Significant degree of slack we had in the labour market has been absorbed
- UK reports a record 78,610 covid cases
- White House says it's confident that schools won't shut down due to omicron
- Weekly EIA US oil inventories -4584K vs -2082K expected
- US business inventories vs 1.2% vs 1.1%
- US NAHB housing market index 84 vs 83 expected
- Canada November CPI YoY 4.7% vs 4.7% estimate
- Empire Fed December manufacturing index +31.9 vs +25.0 expected
- Canada November housing starts 301K vs 238K prior
- Atlanta Fed GDPNow estimate for 4Q GDP growth cut to 7.0% from 8.7% last
Markets:
- Gold up $8 to $1778
- US 10-year yields up 2.3 bps to 1.46%
- WTI crude up 80-cents to $71.53
- S&P 500 up 77 points to 4711
- AUD leads, JPY lags
There was a total turnaround in market sentiment after the FOMC decision. Why?
There will be some who find some part of the FOMC statement or dots but I'm not going to be that guy. The faster taper and dot plot showing three hikes next year were hawkish. The initial reaction (USD strength) is what you would expect.
For there though it all turned around and I think that was about positioning and sentiment. The vast majority of the talk -- and likely positioning -- was long dollars and short stocks into the decision. The market has a habit of hurting as many people as possible and I suspect there was position covering and then a squeeze.
And what a squeeze it was. USD/CAD fell to 1.2847 after coming only a few pips shy of the 2021 high of 1.2949, a full cent turnaround. Similar magnitude moves came in AUD/USD and NZD/USD as they went from session lows to session highs in just over an hour.
It wasn't all bad news for the dollar by any measure, it turned around against the euro and yen. That's equal measures risk appetite and hawkishness.
Cable continues to trade like a commodity currency despite the brutal outbreak hitting the UK now. In the bigger picture, that could be a sign that the market will look straight through omicon, just like it has every other variant.
Given that I think this is a squeeze and not a fundamental change -- and the small moves in bonds support that -- then I'm not sure how sustainable these moves are. Of course with year-end now squarely within sight, those flows will be part of the equation as well.
