Good Sunday evening MacroEdge Readers & Community,
This week we’ve got an interesting one with the FOMC decision ahead - where it looks like that the FOMC will raise interest rates by 25 basis points amid elevated & embedded inflation, and amidst the largest energy shock of the decade (surpassing the starting days of the Russia-Ukraine war). There are many factors at play here beyond energy prices, though they are undoubtedly going to play the largest role (along with other commodities) and bonds into and through Q4.
There has been a lot of outrage this week on X amongst the ‘beta bros’ - who are desperate to keep the high inflation status quo going to keep tech equities sideways or higher. The reality has been since May that inflation has started running too hot and putting a damper on the broader tech and AI trade…
As inflation pushed the final surge higher - we now have a dynamic where there are crosscurrents emerging among messaging - and we are still looking at an overall slowdown in data center construction going into 2027. Democrats have adopted more of an ‘anti’ data center messaging campaign strategy - as I suspected they would earlier in the year - and that is going to resonate strongly with voters this cycle. Even as the headline labor #s mask actual labor market weakness right now - and will continue to do so - the anti-AI messaging is going to continue to grow in popularity into 2027.
With some of these crosscurrents emerging - we have tech starting off the week on a softer note - but I would take it with a grain of salt right now. I suspect that October is going to be a very interesting and dynamic month with the energy shock, and we’ll talk more about that below. On top of the potential (and likely rate hike), which will not solve the underlying supply shock, Asian markets are also continuing to wobble - with the KOSPI failing to reclaim its major uptrend going back 12+ months. All of these red flags warrant paying attention to, and there is total apathy about the severity of this energy shock - which is mind-boggling…
This evening we’re going to cover the macro week ahead - which will focus heavily on the FOMC meeting, discuss FOMC odds and whether or not their decision will matter as yields continue to rise, highlight a few technical looks - notably from Asia, and wrap up with ‘the inflation problem’ - which is something that the Fed cannot alone solve… This time higher prices and shortages may have to do that.
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MacroEdge Schedule for the Week
Tuesday: War Note
Wednesday: Portfolio Strategy Update, Oil and Gas Strategy Update
Thursday: Midweek Macro Note
Friday: Radio Show - TBD
Saturday: Weekly Oil and Gas Macro Note
Macro Week Ahead
Developments in the bond and energy/commodities markets will continue to set the tone on everything through the remainder of the year, as it looks very unlikely that the Strait of Hormuz is going to reopen by that point. The decision this week is going to get a lot of attention, but either way - hike or not - the bond market will do the work as investors love faith in Bessent and the runaway fiscal train in the US.
Housing & industrial data is scattered throughout the week.
Wednesday: FOMC Rate Decision (USA), US Retail Sales
Friday: BOJ Rate Decision (Japan), National CPI (Japan)
Reporting this week:
FedEx
General Mills
Darden
FOMC Week and Odds
The Fed is very likely to increase the policy rate this week, by 25 basis points. Odds are anywhere between 75-90%, and I would peg it about 95% right now. With the President threatening additional tariffs if the Fed hikes, the bond market is well aware that the problem actually lies with Congress and not the Fed, even though the Fed has largely become an enabler of policy failure after policy failure.
In the prediction markets - odds are relatively similar:
As Tom says frequently on X… follow the 2Y and disregard the noise:
