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Waiting for Some Important Directions



Chief Market Analyst

Market participants still don’t know for sure if the tariffs on the final tranche of imported Chinese goods will go into effect December 15 and they are also waiting to hear (even though they have a good idea already) what Fed Chair Powell has to say at today’s press conference to shed light on what the FOMC is thinking about the economic outlook and the policy rate path.

Briefly, market participants are apt to hear the FOMC voted to leave the target range for the fed funds rate unchanged at 1.50-1.75%, that the outlook calls for moderate growth and a return to the Fed’s 2% inflation target, and that policy is not on a preset course.

In other words, today’s FOMC decision has the makings of being a non-event, which is an event in and of itself because it seems every FOMC meeting to this point, or certainly this year, has been “an event.” Any element of surprise would be contained in the updated economic and dot plot projections or in the Q&A portion of the Fed chair’s press conference.

The policy rate decision and directive is released at 2:00 p.m. ET, along with the updated projections. The press conference starts at 2:30 p.m. ET.

The stock market might, or might not, do much ahead of those happenings. Right now, it isn’t expected to do much in opening action.

The S&P 500 futures are up four points and are trading 0.2% above fair value. The Nasdaq 100 futures are up 21 points and are trading 0.3% above fair value. The Dow Jones Industrial Average futures are down 25 points and are trading in-line with fair value.

Home Depot (HD) is a primary drag on the Dow futures. It is trading 1.5% lower after providing preliminary FY20 sales growth guidance of 3.5-4.0% ahead of its Investor and Analyst Conference today, which is shy of analysts’ average 4.4% growth expectation.

Chevron (CVX) is another drag, trading 0.5% lower after saying it will take an $11 billion writedown of its gas assets in the fourth quarter. We can add Boeing (BA) to the drag mix, too. It is down 0.6% after the FAA administrator told CNBC that it is impossible to know right now when the 737 MAX will be re-certified for flight.

“Impossible to know” is akin to the same spin on the status of the December 15 tariff action. Senior U.S. officials seem to be taking a “maybe, maybe not” party line, noting it all depends on how talks go and whether those talks lead to a great deal for the U.S. 

Something everybody knows, however, is that the Consumer Price Index (CPI) increased 0.3% month-over-month in November ( consensus +0.2%) and that core CPI, which excludes food and energy, increased 0.2%, as expected, for the second straight month.

With the monthly changes, the year-over-year increase for CPI increased to 2.1% from 1.8% in October while core CPI held steady at 2.3%.

The key takeaway from the report is that there was an uptick in prices across most key categories. That uptick is something the Fed wants to see at this juncture and it won’t be quick to stamp it out with a rate hike, particularly since the Fed’s favorite inflation gauge — the PCE Price Index — is still running comfortably below the longer-run 2.0% inflation target.

The Treasury market for its part took the CPI data in stride. The inflation-sensitive 10-yr note yield is down one basis point to 1.83% as it, too, seems to be waiting on the Fed and clear direction on the unclear tariff path.

Originally Posted on December 11, 2109 – Waiting for Some Important Directions

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