FOMC Meeting and Friday’s Jobs Report Will Determine Future Market Sentiment

Gold futures now for the second day in a row have traded lower. Today the December futures contract closed down $5.90 (-0.39) and is currently fixed at $1489.90. There was neither strong tailwinds or headwinds provided by the dollar which closed off fractionally on the day.

The current focus from market participants is the FOMC meeting which began today, as well as the upcoming U.S. Labor Department’s nonfarm payroll jobs report due out on Friday.

As far as the Federal Reserve is concerned their decision will be announced on Wednesday, October 30, and it is widely expected that they will announce and implement a ¼% interest rate deduction. Currently the CME’s FedWatch tool is predicting that there is a 97.3% probability the Fed will announce a rate cut tomorrow.

This is up from yesterday’s prediction that the probability of a rate cut this month is 95.1%, which is up from last week’s prediction of 94.1%. Based on the fact that the probability of a rate cut has increased over the last week we can assume that it has been largely absorbed, or factored into current pricing of both U.S. equities and gold.

Market participants and analysts will be looking for two primary factors in the statement when it’s released and comments by Chairman Jerome Powell. First and foremost is whether or not they have voted to cut rates. Secondly, they will look for in indication of the current monetary policy and stimulus that the Federal Reserve has planned for.

According to MarketWatch, (the) “Fed says it will start to buy treasury bills next week to ease money market pressure”. Currently the FOMC has approved purchases at an initial pace of 60 billion per month. The Fed will also extend its deadline for an “overnight and longer-term repurchasing agreements to ensure that the supply of reserves remain ample and to mitigate the risk of money market pressures.”

There is dissension amongst analysts with some including myself arguing that these purchases are simply a mild form of quantitative easing, while others except the definition of this action by the Federal Reserve in which they state emphatically that they have not begun another round of monetary, or quantitative easing.

Lastly market participants will focus more long-term on the upcoming meeting in Chile where the leaders of both China and the United States will meet face to face and hopefully sign the agreement which was hammered out in Washington DC earlier this month.

These three upcoming fundamentals of events will profoundly influence and shape the future market sentiment for both risk on and safe haven assets.

Wishing you as always, good trading,