Wait-and-see for FX, Sell-off for Equities

Global equities fell lower on Tuesday morning ahead of tomorrow FOMC meeting, with front month futures on the S&P 500 erasing Friday’s gains. The effect of the better than expected NFP figures didn’t last long. S&P futures are down 0.38% during the European morning, while across the Atlantic, futures take a bigger hit. The Eurostoxx 50 gave up 0.98%, while the German DAX fell 1.24% at the time of writing. Accordingly, volatility is on the rise as the VIX climbed to 16.50% while its European counterpart hit 16.30%.

With the US-China tariff deadline looming large, investors are nervous the Trump administration and China would be able to strike a partial before the December 15 deadline. In addition, investors are impatiently waiting for tomorrow FOMC meeting. As there is no doubt Jerome Powell will leave the Fed funds rates targets unchanged at 1.50%-1.75% for sustained period, the focus inevitably shifts toward the possible relaunch of quantitative easing (since the balance sheet extension initiated in October wasn’t actual QE, remember?).

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However, looking at the latest job report, it appears more and more likely that Jerome Powell and his team will remain on the sidelines. Indeed, it would difficult to justify an easing measure as the fall in unemployment rate, strong hiring and rising wages have all inflationary effects.

For now, the market’s wait-and-see mind-set over the last week has demonstrated that investors couldn’t find any reason to push stocks higher and that the lingering uncertainty stemming from the trade war, Brexit and FOMC meeting was acting as a drag that only more QE can resolve.

In the FX market, investors haven’t switched to risk-off mode yet as the single currency edged modestly higher against the greenback during the European morning, up 0.13% to 1.1078. The Swiss franc rose 0.18% against the buck to 0.9863, which suggests that investors are still a little bit nervous. The Japanese yen is treading water around 108.59.

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