Risk Assets Cautiously Grind Higher Ahead of FOMC

Stocks rallied with commodities while Treasury yields and swap rates sold off marginally ahead of today’s all-important Fed announcement.  Markets have calmed since the global turmoil caused by China’s surprise currency devaluation in August, but expectations remain extremely low (4% market implied probability) for a rate hike this afternoon. That being said, the meeting remains important because the Fed has the opportunity to prepare markets for a December hike, which would likely be a prerequisite if it is still on the table.  There is no scheduled press conference today, but there is one following the December meeting.  Fed Chair Yellen will also have an opportunity to provide more guidance on monetary policy when she testifies before the House Financial Services Committee on November 4th.

US economic data is light, but the market gets another heavy dose of corporate earnings, including 44 of the 500 companies in the S&P’s benchmark index.  In a surprise move overnight, Sweden’s central bank upped its quantitative-easing asset purchase program by 65 billion Swedish krona to 200 billion krona by the end of June 2016.  Inflation is stronger in Sweden than it is in the Eurozone, and ECB executive board member Coeure said that low inflation may warrant more stimulus there as well, as Draghi alluded to last week.

In addition to the FOMC, the market gets supply in the form of the $15 billion 2-year FRN auction and $35 billion 5-year note auction, both of which are expected to go smoothly.