The Other Central Bank Reports Wednesday After the Close
The Other Central Bank Reports Wednesday After the Close
Wednesday's Fed decision needs no preview. A hold at 3.75–4.00%, a December hike priced at roughly 80%, a chair who treats forward guidance as a vice. The statement lands at two o'clock and will be digested by dinner, because the event that sets monetary conditions this week is scheduled for a few hours later, when Microsoft and Alphabet open their books, with Amazon following on Thursday. Three companies will tell you how much they plan to spend next year and, more usefully, where they plan to find it.
Call them what they are. Moody's puts sector capex at $785 billion this year and close to a trillion in 2027. Third-quarter GDP arrives Thursday with a consensus near 3.2% annualised, and forecasters credit data-centre spending for a good part of it. That is a fiscal impulse with no appropriations committee, no budget score and no voters, steered by a handful of boards. When the Fed wants less demand it moves a rate by a quarter-point and waits for the effect to find the right people. A single line in a capex guide can move more real demand than that ever will.
The price of money that matters is not the one the Fed sets either. The ten-year sits at 5.0%, a full point above the top of the funds range and a long way from the 4% or so it paid before the war, after touching 5.36% earlier this month. A December hike would arrive at a long end that has done its own hiking, with oil at $115 doing the persuading. Brent settled Friday at $116.72, the highest since April, up 6.2% on the week. This morning it has handed back a couple of dollars because Qatari mediators reached Tehran, even as the Houthis claim fresh strikes on Saudi oil sites and an airport and Riyadh says it intercepted more missiles overnight. Ambassador Tom Barrack said a weekend strike on Iran was possible, the President said he knew nothing about it, and nothing came. The market reads that as a postponement to the far side of the November 3 midterms, not a cancellation. The IEA's Fatih Birol told a Singapore audience he doesn't expect 2027 energy markets to look like the pre-war ones. Nobody at the Fed can print a barrel.
Elsewhere the script is identical. JPMorgan's Bruce Kasman describes a shallow global hiking cycle, the G3 are expected to hold, Wellington is expected to lift to 3% on Wednesday, and everyone is signalling December and hoping oil blinks first.
Tightening has an address, and it's in Seoul. The Kospi has shed almost 19% this month. Goldman cut its twelve-month target from 12,000 to 9,000 and in the same note still found more than 60% upside, which tells you how far the index has already fallen: over 35% from the June peak. The Nikkei lost 4.0% last week and another 0.8% this morning. Those indexes are where the memory chips and the tooling live, and chips and tooling are line items inside that $785 billion. Asia is the exhaust pipe of the American capex engine, and the exhaust has turned hot.
Then there is the matter of who pays. Alphabet spent $44.9 billion on capex last quarter against $39.1 billion of operating cash flow, the first negative free cash flow in its public history. It has also sold $49.6 billion of its own stock, with a further $40 billion program in place. Meta printed its first negative free cash flow since 2012 last week and was sold hard on Thursday. Amazon's trailing free cash flow is negative $7.6 billion, and it came to the bond market for $25 billion in July. Microsoft is the last of the four still printing cash, $19.6 billion last quarter, down 23% on the year, with capex guided above $50 billion. The most profitable enterprises in the history of capitalism have started issuing securities at the margin to buy hardware that wears out faster than the paper matures. CoreWeave, whose bonds have been quoted around 15%, is just the place where the market prices that trade without a famous logo in the way.
So the decision tree has two branches and the Fed sits on neither. Suppose the guides rise again. Alphabet has already said 2027 spending climbs significantly from the $195 to $205 billion planned for this year, and the stock closed Thursday at $324.22, 21% below its high, with options pricing a move of around 5%. The shares take the punishment, but the spending still shows up in GDP and in the price of everything it touches. Thursday's core PCE, expected at 3.1%, doesn't cool, and December stays live. Now suppose the boards bow to their shareholders and trim. The relief rally in New York arrives together with an air pocket in Seoul, Taiwan and every supplier whose backlog was a promise, and the Fed receives a slowdown it never voted for. Either way the Committee is a spectator with a gavel.
Even gold has stopped pretending to hedge any of this. It sits at $4,001, down more than 4% on the week, because the thing it competes with pays 5%.
The Committee votes at two o'clock. The vote that matters gets counted after the close.