Markets Face Volatility Risk on FOMC Minutes and Inflation Data

But many will step away from the markets next week for a long Thanksgiving break

• November FOMC meeting minutes are eyed as officials rethink dovish stance.
• U.S. PCE inflation data may reinforce the downshift in Fed rate cut bets.
• Eurozone CPI inflation data may overshoot expectations, lifting the euro.

A holiday-shortened week will bookend November as U.S. markets close for Thanksgiving on Nov. 28 and reopen for a shortened session on Nov. 29. The ranks of market participants tend to remain thin for this abridged outing, and many will be stepping way for a long break by the middle of the week.

The draining of liquidity from the world’s biggest financial markets against this backdrop might make for quiet consolidation. However, the shallower depth of buyers and sellers at every price level that this implies might make for amplified volatility if some sort of event risk jolts sleepy traders into action.

With that in mind, here are the key macro waypoints to consider.

Federal Open Market Committee meeting minutes

The U.S. central bank seemed to dial back dovish conviction with this month’s policy announcement. Officials seemed to have grown more cautious after September’s big-splash 50-basis-point (bps) rate cut and confident projection of 150bps in further stimulus to follow through the end of 2025.

This almost certainly reflects the markets’ repositioning for higher inflation after September’s moves. Fed Chair Jerome Powell made the point still more overt with a closely-watched speech last week (as expected). He forcefully argued that policy is not on dovish autopilot, reiterating that ensuring arrival at the 2% price growth target is a priority.

With that in mind, traders will be keen to size up just how much backpedaling officials did at this month’s Federal Open Market Committee (FOMC) conclave. If minutes from the meeting suggest the central bank is having second thoughts, another jump in bond yields may spook stocks and lift the U.S. dollar while gold prices retreat.

U.S. personal consumption expenditure (PCE) price index

The Fed’s favored inflation gauge is expected to show that headline price growth cooled in October, slowing to 2.1% year-on-year from 2.2% in the prior month. The core PCE measure excluding volatile food and energy prices—a focal point for central bank officials—is seen holding unchanged at 2.7%.

On balance, this would amount to four consecutive months without disinflation, echoing what has already appeared in consumer price index (CPI) figures for the same period. Citigroup analytics suggest U.S. economic data outcomes still tend toward outperformance relative to baseline forecasts, setting the stage for an upside surprise.

As with the FOMC minutes, any indication that the Fed rate cut outlook still appears more generous than realistic will send Treasuries lower as yields and the greenback rise in tandem. Stock markets are unlikely to be pleased.

Eurozone consumer price index (CPI) data

Meanwhile, inflation in the Euro Area is expected to tick up to 2.3% year-on-year in November, marking the highest reading since July. Here too, Citigroup tracking of economic data surprises from the currency bloc suggests a skew toward overshooting on the topside has emerged in recent weeks.

If that foreshadows a sharper rebound in price growth, the euro may rise as European Central Bank (ECB) rate cut speculation cools. As it stands, the markets have priced in a commanding 82% probability of another 25bps cut before year-end and 86bps in further easing next year.

Ilya Spivak, tastylive head of global macro, has 15 years of experience in trading strategy, and he specializes in identifying thematic moves in currencies, commodities, interest rates and equities. He hosts Macro Money and co-hosts Overtime, Monday-Thursday. @Ilyaspivak

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