Earlier today we presented a broader overview and preview of today’s 2pm October FOMC Minutes. The obvious question, however, is how will these minutes move markets?
Well, according to Goldman’s Sales and Trading desk, “expect today’s Minutes to be Dovish, as they will likely line up with Nov 2 FOMC statement (“The Fed said it will consider existing tightening steps, the lagged effect of policy, and “economic and financial developments”). On 11/2, market loved the above (S&P gapped up 125bps) which was latter walked back by Powell’s Hawkish 2:30pm press conference (“I would also say it’s premature to discuss pausing. It’s not something that we’re thinking about. That’s really not a conversation to be had now. We have a ways to go”).”
Goldman’s point is simple: the Minutes will focus on the statement, not Powell’s reaction to the market’s reaction to the Minutes – which was meant more to punish the market than to explain the Fed’s reaction function – and it’s why according to another Goldman trader, John Flood, “in a vacuum the mins should set the stage for the market to grind higher (yes some of this was pretraded on Tuesday) in what will be one of the lightest volume and most illiquid sessions of the year as we head into Turkey Day.”
Some more from Flood:
Remember during FOMC on 11/2 S&P had its sharpest EVER selloff during a press conference (2:30pm to 4pm) as there was a true bifurcation between the official statement (dovish) and Powell’s commentary (hawkish) during the 2:30pm press conference…
Official Written Statement: The Fed said it will consider existing tightening steps, the lagged effect of policy, and “economic and financial developments” (all dovish phrases).
Powell during the 2:30pm press conference: “Okay. So I would also say it’s premature to discuss pausing. It’s not something that we’re thinking about. That’s really not a conversation to be had now. We have a ways to go. The last thing I’ll say is that I would want people to understand our commitment to getting this done and to not making the mistake of not doing enough or the mistake of withdrawing our strong policy and doing that too soon. I control those messages. That’s my job.”
As Flood concludes, the “Minutes should resemble the former. Buy stocks before they hit at 2pm.”