Instead of a choppy Tuesday as we waited on the FOMC, the big miss on Housing Starts engaged the bears making lower lows in the index chart before whipsawing back up in the afternoon session. Market Breadth continued to weaken while the VIX ended the day seemingly ambivalent to the volatility.  Today, of course, we will get the FOMC decision and Powell’s press conference which will likely be more relevant to the path forward.  How the market reacts is anyone’s guess so plan your risk carefully.

Asian market finished their Wednesday session mostly lower after China kept its benchmark loan rates unchanged.  However, European markets are green across the board after learning that U.K. inflation came in slightly below forecast.  With a pending FOMC decision, U.S. futures look to follow through on Tuesday afternoon rally pointing to a bullish open ahead of market-moving data that could inspire some big point moves up or down.

Economic Calendar

Earnings Calendar

Notable reports for Wednesday include FDX, GIS & KBH.

News & Technicals’

Deutsche Bank CEO Christian Sewing said Germany was not the “sick man of Europe”, but admitted it had some problems. He said Germany had a recession in the first quarter and faced challenges like aging, low investment, high taxes, and complex rules. He said Germany needed to invest more in digital, green, and social areas, and to reform its tax and labor systems. He said this would make Germany more productive, competitive, and growing.

The global debt stock, which measures the total amount of debt owed by governments, corporations, and households, reached a record high of $307 trillion in the first half of 2023, according to a report by the Institute of International Finance (IIF). This represents an increase of $10 trillion from the end of 2022 and more than $100 trillion from a decade ago. The IIF is a global association of financial institutions that monitors and analyzes the trends and risks in the global debt market. The main reason for the rise in global debt was the surge in inflation, which eroded the real value of debt and reduced the debt-to-GDP ratio. The debt-to-GDP ratio is a measure of how much debt a country or region owes relative to its economic output. The global debt-to-GDP ratio fell from 362% in the first quarter of 2021 to 336% in the second quarter of 2023, as inflation outpaced nominal GDP growth. Inflation was driven by factors such as the pandemic, supply chain disruptions, fiscal stimulus, and commodity price shocks.

The House GOP leadership has postponed a vote on a bill that would prevent a government shutdown at the end of the month. The bill, known as a continuing resolution (CR), would fund the federal government through Oct. 31, giving lawmakers more time to negotiate a longer-term spending plan. However, the bill faces opposition from some House Republicans, who object to its inclusion of a debt limit suspension, which would allow the Treasury Department to borrow more money to pay the government’s bills. The U.S. faces a looming government shutdown if Congress fails to pass a CR by midnight on Sept. 30, which could result in the closure of nonessential federal agencies and services, and the furlough of hundreds of thousands of federal workers. The U.S. also faces the risk of a default on its debt obligations if Congress fails to raise or suspend the debt limit by mid-October, which could trigger a financial crisis and damage the U.S. credit rating. The House GOP leadership pulled the vote originally scheduled for 2:30 p.m. ET on Wednesday, according to an updated schedule, and said they would try again on Thursday. The bill is expected to pass the House with mostly Republican votes, but it will face an uncertain fate in the Senate, where Democrats have vowed to block it.

Indexes whipsawed substantially after Housing Starts came in signifyingly below consensus estimates at a level not seen since June 2020.  The selling was broad-based affecting most sectors however the rally back in the afternoon left behind hopeful hammer candle patterns suggesting a least a short-term relief rally could be near.  Of course, what will determine the day is the FOMC decision and what investors take away from Powell’s press conference about the path forward.  Anything is possible and I think traders should be prepared for big point moves and whipsaws in price as all the pent-up market emotion spills out.  Keep in mind it is also possible the FOMC decision turns out to be a nonevent with so many stocks in their blackout period before 4^th quarter earnings.  Buckle up it could be a wild day.

Trade Wisely,

Doug