 Hey everyone, this is Mike Kramer from Mock Capital with a weekly check-in. Today is Tuesday, September 19th It's around 6.15 New York time and US markets are closed Of course tomorrow is a big day with the FOMC meeting The statement is released at 2 p.m. Eastern followed by a press conference at 2 30 Eastern And so I think that the most important thing tomorrow Is that the the market is not expecting the Fed to raise rates They're expected to skip the signaling and most of the telegraphing and speaking that came out of the Fed prior to the blackout period also suggested that many of the Participants and were in favor of a skip and really what the focus is going to be I think shifting towards going forward is Not necessarily how many more rate hikes there are But really it's going to be how high our rates going to have to stay and for how long There is certainly the possibility of an extra hike being priced in at some point down the road But as of the June meeting the expectation was was for one more rate hike before 2023 was over and what's most interesting about This whole meeting tomorrow is the shape of the Fed fund futures curve and this is an extremely important Because we can see that the market is seeing a peak terminal rate somewhere around five and a half percent And then you can see rate cuts being priced in for next year But what's important here is that the rate cuts even though they're being priced in only bottom out at around 4.1% and so what this means is that the Fed fund futures curve is telling us that Nominal rates are not going to go below four percent For the next five years potentially and that's really important, right? Because this is you know a big difference over where it was a month over a month ago when It was expected that rates would come down Below 4% and if we were to even go back six months ago now, which was in the spring You can see that rates were looking to go below 3% and so this is dramatic shift in how the market is now thinking about Not only the terminal rate of where the Fed peaks Interest rate policy, but really it's more becoming about Where the Fed is going to be a year from now two years from now and what this yield what this Fed fund futures curve is Telling you is telling you that Fed funds rates are not going to be below 4% anytime soon now obviously this can change over time because economic data changes and this and Scenarios change but this is what the pricing is as of this moment and also what we look at is the real yield curve And we can see real yields the lowest rate here 1.98 percent And what this is telling you also is that the markets expecting real yields to stay elevated for some time And if we think that the Fed has a two percent inflation target What this is also implying and telling you is that if you take and it will add two percent inflation to this number Nominal rates are going to be above 4% for the foreseeable future And this is really important because that means that when we when we get this dot-plot tomorrow While this may number may not change at 5.6 percent It's possible that it does go up But the more likelihood is that we're likely to see this number for 2024 Go up to reflect something more like how the market is pricing in and the big change could come in 2025 With this number potentially going up to about 4% and then of course the longer run rate Could potentially move higher as well in fact at the last meeting we already saw that the central tendency Had moved from 2.4 to 2.6 range to 2.5 to 2.8 So certainly this is a number that can also move higher. So the bond market seems to get it In terms of rates really being higher for longer and understanding that when the Fed means higher for longer It means that interest rates are going to be staying in this four to five percent range for potentially a very long time And I think that's really important because Again when we just start looking at things like the two-year treasury yield That's moved up, you know again towards the upper end of the range here As of today in fact we were as high and we closed that Essentially 5.09 percent, which is really the upper end of the range In fact when we look more closely you can see that this was actually a New closing high for the two-year yield going into tomorrow's meeting. So Obviously the two-year right now is positioned again to potentially move higher With really the next big level of resistance somewhere around five and a quarter percent To see that you really need to go all the way back to this point in time here where this was basically June of 2006 and then after that you'd have to start looking at rates in the year 2000 so right now rates are on the cusp of being at levels They haven't been at since 2006 at the front of the curve And certainly if you begin to think that you know Fed funds rates next year are going to be you know closer to five percent then it certainly begins to make sense to think that the five the two-year rate can begin to move higher from here and Even when you look at the five-year rate today Had a big move up when we look at it on the daily chart The five-year rate today made a new closing 52 week high Again, it looks like the five years breaking out and if we go back and start looking at you know How high the five year can go? It becomes clear that you could be looking at a five-year that moves up to around 515 if if indeed we get a market That breaks out here and certainly when we look at the 10-year the 10 years already had a big move the 10-year also made a very big Close today also closing at a new 52 week high and The 10-year could very well be on its way to four and three-quarter percent while the 30-year could also be looking at You know higher rates to around four and three-quarter to four point eight percent And then when we start looking at things like the dollar index the dollar index has had a really big move It's had you can see you know one two three four five Six seven eight nine weeks in a row of closing higher This would potentially be the first week if we were to finish lower that we've seen in a very long time I mean right now the to the dollar index really has some room to move up a little bit more to around 105 60 or so But again, we can see that the dollar index is getting you know very stretched at this point So would some more sideways consolidation be warranted? Sure. Absolutely But again what we're kind of watching here not only is the dollar index But you know really the price action of the euro which Had a move higher today got up to resistance tested it at 107 and then reversed and moved lower and Again, this is your big downtrend that just seems to be in the way So as long as the euro continues to drift lower You have to think that the movement for the dollar index is to test this 105 60 area in the short term The Japanese yen is also important to watch because it looks like right now it's stalled out around this 147 80 region Which again is a big level and really what we've been seeing here is now you have this potential shift Where you're gonna have the Fed potentially going on hold for a while while threatening You know rates to be really high for a very long time While potentially we have a big boj meeting coming up at the end of this week that could also Result in movements in the Japanese 10-year rate, which has also been already been moving up up to 70 one basis points yesterday almost 72 basis points and You know if you get a hawkish Fed tomorrow That's very clear that rates are going to be staying at above 4% for a very long time Closer to 5% for the next year to year and a half You're talking about a Japanese yen that can easily move back up to 148 75 to 149 And maybe even surpassed this 150 level the big question obviously is once you start getting up to 150 When does the Japanese you know government the monetary authorities? Start stepping in and conducting intervention and that's really the big key here because that makes things a little bit more challenging in terms of You know again how fast and how high this this yen can weaken to and then of course when we start thinking about you know equity markets You know we've seen that the NASDAQ Solidating here the NASDAQ 100 has basically been trending lower now for some time It had an uptrend that was clearly broken today And yesterday and we can see right now. We're sitting on support at 15,000 and 30 You know if you get The one thing to keep an eye on tomorrow is clearly going to be what happens at you know around 230 when pal starts talking because typically what we see following You know pal is you get this VIX crush and so the VIX today really didn't have a very big day But again typically around 230 you begin to see implied volatility levels come down and that could result in the NASDAQ 100 actually getting a rally at some point tomorrow Depending upon you know how high that VIX is going into the meeting Obviously the more implied volatility goes down the bigger the rally can be But the the key level here for the NASDAQ at least over the short term is this 15,000 to 10 level with the next big area of resistance up here around 15,000 to 90 or so and clearly your support level here 15,070 with a break of that level really setting up something more like 14,960 or so and we move over to the Dow. It's the same story. It seems like now for several months the Dow Again got up to and tested, you know, 35,000 Sveiled came back down below 34,600 Today it It went below the trend line You know for the first time we can see that the Dow Did close below the uptrend. There was one other instance here so what this tells us is that if the Dow doesn't snap back tomorrow really quickly and You know take out, you know, not only This high but then also get above this high here at 34,630 anything short of that You know, you're really running the risk now of the Dow being in a broken Failed breakout attempt with a break of this low with 34,300 Starting what could be a significant decline potentially taking you back to around this 33,000 range to start and That's really all we have for today. Hope you have a great day and good luck tomorrow. Bye