17.09.25 - Fed decision day with extrem positions

Tonight, all eyes are on the Federal Reserve. Consensus expects a 25bps cut, bringing the Fed Funds rate down to 4.25%.

Markets: a nine-day winning streak ended yesterday

• Nasdaq Futures trading flat

• US 10-year yield is slipping towards 4.0%

• US dollar continues to drop (against Swiss Franc below 0.79)

• Gold: pulled back after reaching fresh record highs above USD 3’700/oz.

• Cryptos: Moving largely sideways.

• Volatility: The VIX index remains at low levels.

My View: Markets are extremely positioned going into the decision. Positioning data shows big bets, highlighted by an increasing and unusually high put/call ratio. A major institution even went so far to recommend their clients add exposure before the Fed’s announcement. That’s a surprising call, given the backdrop: we are coming off an eight-day winning streak in equities, the speculative sentiment is running hot, such an environment increases the likelihood of a setback, especially around a key policy event.

The press conference with Jerome Powell will be the interesting to follow. Investors will parse every word for clues about the future easing path. A 25bps cut is already priced in, what matters is the guidance.

Could this turn into a classic “buy the rumor, sell the fact” moment? With sentiment extreme, a take-profit wave following the announcement would not surprise me.

Become a member to access more valuable market updates like this.