EUROZONE ISSUANCE: EGB Supply (1/2)

• US equity indexes are extending lows into midday - risk sentiment souring after the US & Iran traded strikes overnight (Iran hitting Jordan again overnight, US responded this morning, while Iraq's Hezbollah threatened Saudi Arabia and US forces). “We’ll be hitting them hard. They’re going to get a beating” Trump said on Fox this morning.
• Cross-asset dominoes: Crude surged (WTI tapped $85.57/bbl high (but still off last Thursday's $93.36/bbl intra-day high), US$ bounced (BBDXY 1222.77), and Treasuries extended lows (TYU6 -10.5 at 108-15.5). This in turn, underpinned rate hike expectations through year end - while chances of a 25bp hike at today's FOMC policy announcement drifted around 33-35%.
• At noon: DJIA is -1.7%, SPX emini -1.12%, the Nasdaq -1.5%.
• Industrials/Materials and IT sector shares led midday declines: Lennox Int -20.25% after missing earnings estimates, Vertiv -15%, Masco -10.6%. High CAPEX for AI-related buildouts continued to weigh on IT shares (note S. Korea's tech heavy KOSPI index has fallen 16% over the last couple sessions): KLA -8.3%, Coherent -7.55%, Sandisk -6.6%, Applied Materials -5.92%.
• On the positive side, Energy sector shares were buoyed by oil and gas stocks due to the rally in crude, the following +4-4.8%: Expand Energy, Diamondback Energy Inc, Occidental Petroleum Corp and Devon Energy Corp.

Assuming the meeting decision is a rate hold, and also assuming that forward guidance will not be provided in any meaningful form, the most important aspect in the press conference will be Warsh’s characterization of the FOMC “good family fight”. While it may be only a terse description, Warsh at least noted in the June press conference “It has been the practice of this central bank and others to have a range of alternatives. Today we had one” - and we’d be interested to hear about the policy options discussed at this meeting.

• Some analyst expectations for the presser:  
• Barclays: “Warsh to provide a succinct characterization of economic conditions and little explanation for the policy decision, and think he will continue to avoid providing rate guidance and defer to the previously announced task forces in response to questions.”
• BofA: “Warsh is likely to repeat his message from his Congressional testimony: the Fed is committed to taming inflation, the labor market is solid and productivity is picking up. In our view, the extent of his stated concerns about inflation will depend on the policy decision… Either way, Warsh probably won't provide any clues on the future policy path.”
• Citi: “Chair Warsh will likely continue to not provide any forward guidance on policy rates.”
• Jefferies: “we expect that his prepared remarks will be shorter than they were in June… may provide some additional details to provide on the range of views expressed around the table and the degree of disagreement between policymakers since he has many times touted a good old-fashioned "family fight" at this meeting, but he is just as likely to describe this fight in nothing more than broad terms.”
• NatWest: “We think Chair Warsh will decide to cut back on hosting FOMC press conferences, but, for now, there is no urgency about making that change. Instead, it is more likely he will wait until the outcome of the task force on communication. In the meantime, we suspect that the chairman will offer very little new information [this] week, keeping with his “hard to read” approach around near-term policy—making the presser as “unnewsworthy” as possible. In addition to talking about restoring price stability, we expect he will reiterate backing away from the numerical specificity around the Fed’s pursuit of price stability.”
• Societe Generale: Warsh “will build on his remarks before Congress: acknowledging the persistent overshoot of the Fed’s 2% inflation target, which may well be more deeply entrenched and again explicitly reiterating the Fed’s commitment to get inflation sustainably back towards a 2% trend. He will welcome the better-than-expected inflation readings for June but at the same emphasize that forthcoming inflation data needs to reinforce evidence of inflation moving more persistently towards a lower momentum. This will imply that each of the upcoming meetings after this meeting will be “live” in terms of a potential rate hike.”
• TD: “Warsh is unlikely to stray away from his messaging at the June FOMC. We expect little forward guidance and continued deference to his task forces when asked about questions on the balance sheet, communications, inflation measures, and more.”
• UBS: "We do not expect a lot of new news.”
• Wells Fargo: “Warsh will use the press conference to buy the Committee time ahead of its next meeting on September 16. He likely will note that policy is in a good place to await additional information and that the Committee will deliver on its inflation target. We expect he will point to the ongoing work of the task forces when asked about balance sheet policy, Committee communications, and the outlook for inflation. We will be listening closely for any hints about where the median of the Committee's views lie as it relates to what would trigger rate hikes, especially as it relates to the next few inflation reports.”

From our reading of analyst previews of the July FOMC, Statement changes are anticipated to be minimal.

• The main focus is on dissents, with firm consensus being that there will be two in favor of a hike: Hammack and Logan. However we have seen many identify Kashkari as a possible dissenter as well.
• One analyst (UBS) identified Barr and Cook as having an “outside chance” of joining in a dissent.
• A few analysts anticipate the Statement will remove the reference to maintaining “ample reserves”.
• Otherwise there is no real consensus on changes, with some seeing the Statement acknowledging the drop in the unemployment rate to 4.2% since the last meeting (UBS), and others raising the possibility of mentioning the soft June inflation data (SocGen: "While recent data indicate some moderation, the Committee needs further evidence that inflation is moving sustainably toward 2 percent.").