SP500 holds gains after PBOC liquidity injection

The FOMC will likely announce the start of tapering at its November meeting and that it will end some eight months later in mid-2022 - slightly earlier than consensus expectations.

Like the June FOMC meeting, movement in the Feds "dots" was notable, indicating a more aggressive hiking cycle than expected. "Lift-off" is projected to commence in 2022 and will be followed by three hikes each in 2023 and 2024, higher than consensus expectations going into the event.

Behind the FOMC's more aggressive rate hike projections, a lift in the committee's core inflation forecasts. Half the committee are now projecting inflation at 2.3% or higher in 2022 vs. 10% of the committee back in June, bringing into question the Feds narrative that the current rise in inflation is transitory.

Another significant PBOC liquidity injection to shore up the Evergrande debt crisis is supporting risk sentiment in the Asian session today. However, beyond this, U.S. equity traders are left to mull over a mix of higher than expected interest rates (albeit at still low levels), higher inflation, and stronger U.S. dollar against a backdrop of slowing growth.

Nonetheless, the decline in the S&P500 from the early September 4549.50 high is viewed as a corrective pullback. While the overnight rally goes some way to suggest the correction is complete at this week's 4293.75 low, further evidence is required.

Firstly in the shape of a move back above the breakdown level at 4425/35, followed by a daily close back within the trend channel 4465/85ish. Until then, a retest and break of the 4293.75 low cannot be ruled out, with risks towards the May 4238 high.

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