FOMC to disappoint the doves - Westpac

Analysts at Westpac provided their take on the upcoming FOMC outcome, which by far will be the most important driver of market momentum and the key to directional impetus this week

“While some market participants continue to argue the case for a 50bp cut, Westpac instead sees a 25bp cut. Market pricing has converged on a similar view following recent comments by officials and after the agreement on the debt ceiling and government spending through to 2021, along with the view the fact that the ECB did not act last week despite Draghi noting that the outlook in Europe was "getting worse and worse. So the question for us as we begin the week is to assess risk rewards under our central scenario and other likely outcomes. Post-cut price action will depend largely on the combination of cuts and language used by the Fed, but our base case is that a 25bp rate cut will need to be accompanied by dovish guidance for it to sustain current 10yr UST yields or push them lower. Indeed, the fact that there are still credible forecasters holding onto the 50bp rate cut view suggests that risk rewards are skewed slightly toward higher yields on the announcement.”