A Needle To Thread | Morning Express | 10/31/2022

Posted: Oct. 31, 2022, 8:35 a.m.

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The Federal Reserve begins a two-day policy meeting tomorrow and concludes with a decision at 1:00 pm CT on Wednesday, however, with 75bps a foregone conclusion, it is the December meeting garnering all the talk.
Odds are holding steady at 53.2% for a 50bps hike in December despite Nick Timiraos, the Fed whisperer from the Wall Street Journal, expressing the difficulty in the Fed communicating a slowdown in the pace of hikes.
- He joined CNBC’s Overtime on Friday, saying, “The Fed does not want to see a dramatic loosening of financial conditions like July-August, that would be a conundrum for them, and counterproductive, they need conditions to stay tight.”
- On CBS’s Face the Nation on Sunday, saying, “The risk of doing too much is a recession, and the risk of not doing enough is that inflation just stays high, and you have to have a bigger downturn later. The Fed is like a car barreling down the highway and using the rear-view mirror to see where you’re going, it raises the risk of running off the road”
S. equity markets had a banner day Friday with the S&P +2.4%, NQ +3.13%, and Dow +2.56%.
Leadership came from Apple +7.56% after reporting earnings Thursday night, turning positive in the face of Amazon’s miss and guide-down.
Stoking strength on Friday was headline Core PCE, ECI, and Pending Home Sales.
- Core PCE, the Federal Reserve’s preferred inflation indicator, came in softer than expected at +5.1% YoY v 5.2%. The MoM was in line at +0.5%.
- The Employment Cost Index for Q3, though stubbornly high, came in lower for the second quarter in a row at 1.2%.
- However, Personal Income and Spending were higher than expected at +0.4% v +0.3% and +0.6% v +0.4%. And final Michigan Consumer data edged higher.
Risk-assets have struggled to carry the torch from Friday’s melt-up, as reality sets in for how difficult the Fed’s task is.
Goldman Sachs now sees two more 25bps hikes in February and March, raising the terminal rate to 4.75-5.00%
Check out our Gain Express for updates on Russia pulling from the UN-sponsored Grain Deal.
Chinese PMIs were a negative surprise last night, with Manufacturing 49.2 v 50.0 and Services 48.7 v 50.2 both contracting for October.
The Chinese Yuan has slipped by 0.75% versus the U.S. Dollar to start the week, reaching what would be the second worst close, behind last Monday. A direct headwind to commodity markets.
Eurozone CPI, both headline and Core, were hotter than expected this morning at 10.7% v 10.2% and 5.0% v 4.8%. While GDP QoQ was slower than expected at +0.2% v +1.0%.
The Dollar Index has gained broadly against global currencies, with the British Pound and Japanese Yen leading weakness.
U.S. 10-year yields continue to flirt with the psychological 4.0% mark, hitting as high as 4.077% on the session.
A big week of data, ISM Manufacturing tomorrow, Fed Wednesday, ISM Non-Manufacturing Thursday, and Nonfarm Payrolls on Friday.
Another pivotal week of earnings (@eWhispers):

ZN 10.31.22

NQ 10.31.22