All about the FOMC Tricky Balancing Act

Markets

While US growth is slowing, and inflation remains exceptionally tepid. But in simple terms, the US economy is not in bad enough, so the committee is very unlikely to reach a consensus to cut interest rates at this meeting. But their message will be tinged with dovishness as most markets’ players are expecting a shift in FOMC communication to drop its “patient” narrative and adopt the language used by Chair Powell recently to indicate that the Committee “will act as appropriate to sustain the expansion”.

Indeed, a lot is riding on this week’s FOMC as the anticipation of Fed easing has single-handedly buttressed global equity markets even as trade war escalation looms ominously.

Oil

Oil markets are opening steady with small gains supported by last weeks renewed tensions in the middle east while the omnipresent gloomy outlook for the global economy continues to weigh on any semblance of the markets top side ambitions.

But the far-reaching consequences of the latest tanker attacks can’t be ignored s ship owners due to higher insurance premiums to navigate the region will charge higher cargo rates to offset the risk premiums which will cut into OPEC profits. Another reason for OPEC+ to reach a resounding supply discipline consensus at months end giving Saudi Arabia commitment to and Aramco IPO.

Gold

Gold remains supported by a high probability of lower US interest rates, mounting trade war tension and escalating Middle East l concerns. Indeed, a winning trifecta for gold prices, but when you factor official sector demand into the equation, Gold markets should remain in vogue. But with uncertainty about Fed policy filling the airs this morning, gold prices as with most asset could get off to a very tentative start this week.

Hong Kong

The People Power is alive and well in Hong Kong, and the boldness of the city’s residents has been validated, And after a fantastic show of solidarity IT suggests the worst-case scenarios have been averted after a sincere and unqualified apology from the cities Chief executive Carrie Lam have satisfied the masses for now anyway.

But at a time when trade relations between the US and China are worsening and as the battleground shifts to ideological warfare, suspending the Extradition Bill was the right thing to do.

This about-face will be viewed as a win for the democratic rule of law championed by the US and could deal a resounding blow to mainland authoritarian rule as this stunning reversal may embolden Taiwan and other states to stand up to Mainland’s authoritarian repression. Mind you It would have been better if they altogether scrapped the out of all reason bill, but I suspect saving face has a bit too with that with their messaging.

Hong Kong market-led economy will breathe a loud sigh of relief today as on Wednesday when tear gas and rubber bullets were filling the air, the markets we’re getting extremely jittery that this ticking time bomb was about to explode. Fortunately, cooler heads prevailed, and not to make light of the story, we’re now taking wagers on how quickly or not President Trump takes credit for the people’s victory.

This article was written by Stephen Innes, Managing Partner at Vanguard Markets LLC