The (Apolitical) FOMC Begins Two Day November Meeting

While the FOMC is likely this week to not change policy on U.S. short rates at its two day FOMC meeting heading into the presidential election next Tuesday, one could argue this is a politically motivated move to appear apolitical -as it seems most Fed officials believe a rate hike would be appropriate now, given recent economic indicators.  Nonetheless, the market only gives a 1 in 6 chance they would shift rates up tomorrow, with a 69% likelihood of a Fed tightening in December.  See chart from Bloomberg below:

US economic data released today mostly pointed to continued domestic economic strength.  US Manufacturing PMI was up to 53.4, exceeding expectations of 53.2 (see chart below from TradingEconomics.com).   ISM Manufacturing, ISM Prices Paid, and ISM New orders all were up more than expected, and the IBD/TIPP Economic Optimism index also indicated strength, coming out at 51.4 vs. 49.0 expected.  Tomorrow there will be little in the way of economic data released, but Thursday and Friday the market will get the latest look at the Nonfarm productivity, Factory Orders, Durable Goods Orders, and the all-important monthly jobs data on Friday.

Internationally, bond yields continue to climb, reaching 4 month highs in most major foreign bond markets.  The 10 year German Bund traded back up to a yield of 0.18% (from a low of -0.19% in July) while the British 10 year Gilt closed with a yield back up to 1.29% – the highest level since Brexit and 76 basis points higher than the low yield print from August.  In the emerging markets, a currency crisis in Venezuela seems to brewing, with the Black market value of the Venezuelan Bolivar falling over 28% in October to over 1,500 Bolivar per US$ vs. many multiples weaker than the officially recognized currency exchange levels used for official government-approved foreign transactions.

All three major US stock indexes finished down 0.5%, while Treasury yields/swap rates moved back up 2-3 bps across the curve on the day.  The selloff in oil has pushed WTI and Brent crude down another $0.30 to $0.40 today, while NYMEX gas is currently trading up 4%, after gapping up as much as 15% intraday, due to a gas pipeline blast in Alabama.