While normally Wednesday’s Fed meeting would be the week’s biggest market-moving event, this time – smack in the middle of the busiest earnings week of the year – it may not even make the top three, buried ahead of the coming news of the next Fed Chair (in which Trump is set to unveil Jerome Powell on Thursday), and the GOP tax bill (which just saw its Wednesday release delayed by one day). One can make the argument that tomorrow’s fully priced in FOMC announcement is also secondary to not only Friday’s jobs report, which may help decide who is right, the Fed’s “dots” or the market, but also to tomorrow’s Treasury refunding announcement.
In fact, the latter is precisely what JPM analyst Jay Barry claimed earlier today, saying the “quarterly refunding announcement at 8:30am ET Wednesday ‘has the possibility to be a bigger event for markets in the morning than the Fed statement in the afternoon’ and since market are ‘priced for a December hike,’ the FOMC meeting isn’t likely to alter expectations in a way that would move the market. Where there is confusion is in the Treasury market, where market participants are divided on whether the Treasury will announce increases to coupon auction sizes Wednesday, or wait until the 1Q refunding announcement in February: ‘There’s a dispersion of views because of the pivot the Treasury Department has had over last few years,’ specifically toward portfolio metrics and aiming to extend the weighted average maturity of the portfolio. Merely reversing the cuts that have been made to 2Y and 3Y auctions since 2013 wouldn’t serve that objective.
‘If they don’t get announced tomorrow, it’s a muted rally, and if they do, it’s a muted steepening, but I think it’s all small because the numbers we’re talking about are only $1 billion month, and because Treasury has been clear in communicating that financing needs are moving higher over the medium term’
This post was published at Zero Hedge on Nov 1, 2017.