FOMC decision could trigger gains on Wall Street

Wall Street had a non-descript session overnight, with the usual big tech inflows lifting the NASDAQ and the technology components of the S&P 500. The S&P 500 drifted 0.52% higher, the NASDAQ rose 1.21%, and the Dow Jones was unchanged. US equity futures have drifted higher in Asia this morning.

Asian markets have contented themselves to follow Wall Street’s lead quietly as they await the FOMC this evening. The Nikkei 225 and Kospi are 0.10% higher, with China’s Shanghai Composite, CSI 300 and Hang Seng unchanged in early trade. Singapore is 0.40% higher with Australia’s ASX 300 and All Ordinaries 0.70% higher. Malaysian markets are closed today.

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All in all, Asia looks set for a modestly positive session and will be subject to the whims of headline-driven short-term volatility with the regional data calendar empty. The markets could become much more active, however, after the FOMC decision. The FOMC will keep the Federal Funds Rate unchanged between 0.00 and 0.25%, with Chairman Powell’s press conference the real main event. The Fed is likely to repeat its lower for longer call on rates and to do whatever is necessary on the liquidity front to support growth and unemployment.

We may get some insight into the nuances of their new “average inflation targeting” process. This marks a dramatic shift in Fed policy, which until now had a firm inflation target of 2 percent. The new stance means that the Fed will allow inflation to overshoot the 2 percent threshold before raising interest rates, if this follows a period of low inflation. At the same time, market watchers expecting an indication of exactly how far they would allow inflation to overshoot 2.0%, and for how long, are likely to be disappointed. In all likelihood, the Fed isn’t probably isn’t quite sure itself, and will manage that situation dynamically.

The FOMC announcement could trigger a buy everything FOMO trade session on Wall Street, which would spell healthy gains on the equity markets.

 

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