The day has finally arrived: today the Fed will officially announce the start of its balance sheet shrinkage (full preview here) while keeping rates unchanged, perhaps hiking again in December (market odds at 56%), while revising its economic projections and "dots", most likely in a lower direction.
Global stocks backed off from all time highs, and S&P futures are unchanged ahead of the much anticipated US CPI report, which is expected to break a streak of five consecutive misses, while eyeing disappointing overnight Chinese economic data which missed across the board. European stocks and Asian markets were also modestly in the red, with the relentless global rally to new daily record highs taking a breather amid some concerns China's economy is rolling over, which weighed on commodities including base metals, which in turned dragged down mining stocks.
For the first day in three S&P futures have pulled back modestly from record levels as some investors cautioned that gains had gone too far, too fast, European shares are mixed while Asian equities extended their longest rising streak in almost two months as continued gains in Japan and India offset the losses in Hong Kong. The dollar ended a two-day advance as TSY yields dropped in what has become a close correlation trade (see below) while oil and gold rose, perhaps in response to the ongoing plunge in bitcoin.
World stocks hit new record highs on Tuesday amid a continuation of Monday's risk-on theme which unleashed a dramatic relief rally on easing North Korea tensions and signs that Hurricane Irma caused less damage than feared (which according to Keynesians should be GDP negative). The MSCI All-Country World Index gained 0.2%, hitting the highest on record with a fifth consecutive advance.
S&P futures are flat, still spooked by the WSJ's report that Gary Cohn will not be the next Fed chair, while both European stocks and Asian shares gain in a overnight session on edge in which everyone is looking forward to today's main risk event: the ECB meeting and Draghi press conference due in under two hours. The dollar continued to weaken against most G-10 peers as tensions over North Korea, concerns over Stan Fischer's resignation and the increasingly cloudy Fed outlook outweighed positive sentiment from the US debt ceiling extension.