Daily Market Color

Markets Await FOMC Meeting Announcement


Financial markets have been quiet ahead of the Fed’s policy decision this afternoon — equities and Treasury yields holding within a tight range, with the 10-year UST yield near 1.83%. The next round of US tariffs on roughly $160 billion worth of Chinese goods, scheduled for December 15th implementation, remains one of the primary risks to global markets. Earlier this week, Chinese trade officials publicly provided their expectation that the tariffs would be delayed/permanently suspended, but their US counterparts have continued to leave the door open. “The reality is those tariffs are still on the table, the Dec. 15 tariffs, and the president has indicated if the short strokes remaining in negotiations do not pan out to his liking that those tariffs could go back into place,” explained Larry Kudlow at a conference yesterday. If the White House does move forward with implementing the tariffs, any further negotiations between the US and China would likely cease through the remainder of President Trump’s term.  



The Labor Department released its latest round of inflation data this morning — core CPI rose 0.2% for a second month in a row and 2.3% from a year earlier.  The primary factors driving November inflation were energy and shelter. In general, the Fed’s preferred measure of inflation lies in the Commerce Department’s personal expenditures price index (PCE), which will be released next week, vs. the Labor Department’s CPI metric which has historically provided a slightly higher reading. Regardless, this slight uptick in inflation supports the theory that the Fed will hold interest rates steady after their meeting wraps at 2:00 PM ET.



Day ahead. The FOMC’s final meeting of 2019 highlights today’s calendar, which concludes at 2:00PM ET. No action is expected from the Fed, but much attention will be given to the release of its interest rate forecast (Dot Plot) and monetary policy statement. Fed Funds futures currently predict one quarter point cut throughout 2020, a nod to recent strength displayed in both labor and inflation data.   Tomorrow, the ECB will announce any policy changes after the first meeting under the new president Christine Lagarde.

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