The FOMC meeting review - being long USDs was the right call
Watch my exclusive video below as I break down what traders need to know post meeting.
I do consider the market pricing vs the Fed’s ‘dots’ projection and we see a sizeable divergence playing out, notably in 2023 and 2024. For context, the Fed see the fed funds rate at 1% in 2023 and 1.8% in 2024, with the market priced at 71bp and 109bp respectively.
Being long USDs was the right call and the fact the Fed is expecting to wrap up its QE program by June 2022 suggests this meeting was symbolic – tapering will start in November, unless we see a shocker of a non-farm payrolls on 8 October 2021, or we see a significant tightening of financial conditions.
It’s interesting to see a positive equity market reaction, with energy and financials working well, with FANGS doing quite well and keeping the bid in the market. This may change as we watch Asia today, to see if Evergrande can indeed make the $86m coupon payment to international lenders and not just the domestic lenders who are expected to receive the interest on the loan.
It’s a fluid situation given if they miss the payment, but then there is a 30-day grace period, which means they won't ‘hard-default’ until then. A bit of market scuttlebutt going around that Evergrande may even be nationalised and cut into three separate SEO’s – I guess this may be good for risk assets – just banter and likely risk positive if it comes to fruition, but potential headline risk for those holding CNH, AUD and HK50 and CN50 exposures.
For the systematic traders out there or for those interested in building robust systems, I'll be interviewing Alan Clements and James Roche today. You can find out more about them here. We start a series of conversations with thought-leaders and experts in the algorithmic world and I, for one, am increasing my interest in systems and can’t wait to hear what the various speakers have to say. Join me there.
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