This year’s final FOMC and year-end precautions

Hello, this is Shimonoyama.



Now, today

From December 13 to tomorrow

on the 14th, both days

the year’s final FOMC will

be held.



The focus of the FOMC is

as everyone knows,

how much the policy rate will

be increased by.





This time, compared to

the previous 75 basis points hike,

there is a strong view that it may be

changed to 50 basis points,

but at the same time

the employment data from the two weeks ago

and last week’s PPI (U.S. producer price index)

show results that indicate

the strength of the U.S. economy,

and potentially

could overturn market expectations

to a degree.





Also, since late November’s Thanksgiving,

holiday season in the West

has begun,

but

from the following week after this FOMC

the full-fledged

holiday season will enter,

and liquidity will become extremely low.





So this time, we will share

the key points of the FOMC

and notes regarding the

late December holiday season.

I think it would be good to convey

these points.


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This year’s final FOMC

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As noted at the outset,

from today for two days

the year’s final FOMC

is being held in the United States.



For investors, the direct impact at this meeting will be

on the final day, the 14th,

the rate that is finally announced,

and on the following

press conference by Fed Chair Powell,

the content of his remarks.







The results of the employment data from two weeks ago

strengthen the expectation of continued tightening,

and indicate that the Federal Reserve

will have justification to slow the pace of hikes

as the economy weakens,

which has dispelled the market’s view

that the economy would weaken excessively.







Also, last week’s PPI exceeded market expectations,

which has led to concerns that

the FOMC may raise rates by more than 50 basis points,

prompting risk-off sentiment,

and a broader expectation of prolonged rate hikes

causing material stocks like steel and nonferrous metals

to fall in value.











In other words, at this FOMC

there is not a high probability, but

the possibility of a 75bp hike

or a prolonged peak rate remains

on the table, and if that happens,

the stock market would likely see a negative surprise.







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Indeed, all eyes will be on Powell’s press conference

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However, what is particularly important is

the press conference by Fed Chair Powell

when the policy rate is announced.


Even during the press conference,

in FX and other markets that are open to trading

in real time, Powell’s remarks

often cause sharp swings.







The point of Powell’s press conference this time is

whether a 50 basis point rate hike will be necessary for how long,

and specifically,





whether the next meeting scheduled for January 31 and February 1

will also see hikes by the same magnitude.





The focus is expected to shift to this.



In any case, the most important is the policy rate’s

“strength” (how high the rate is) and

“duration” (how long it remains in effect),

and the content of Powell’s remarks at the press conference

will be the basis for market participants to

gauge next year’s stock market direction.












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Notes for trading from mid-December through New Year

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The market’s big players, including Western and European institutions,

are entering the holiday season,

and December’s lineup differs from usual,

so there are several cautions.







As major players shrink, market liquidity

will become thinner.





Low liquidity means the order book is thin,

so it is better to consider that

large moves can occur with smaller amounts of capital.


In other words, during low liquidity periods

it may be harder to use technical indicators,

so trade with this in mind.










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Summary

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There are only about two weeks left in the year,

and this year has seen a downward trend throughout from January.







Also, the yen’s rapid depreciation has peaked,

and next year it is expected to move toward yen appreciation,

which could lead foreign investors to return to Japan’s stock market.













On the other hand,

the extent to which each country’s recession progresses

is still a concern, but

in the coming year, a hopeful recovery trend

would be desirable.







We will continue to provide

the latest current events and

stock market trends

in this newsletter.



Now, please read to the end today as well,

thank you.


Keizo Shitayama



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