###POV. Markets widely expect the FOMC to......>

FOMC: ###POV. Markets widely expect the FOMC to announce a modest balance sheet

reduction today. But while a U-turn on the balance sheet should be big news,

there is more attention upon the dotplots. 

- We head into the Fed in familiar territory: the median end-2018 dotplot shows

2.125% whereas the forward OIS rate for the inter-meeting Dec-18 to Jan-19 FOMC

meeting is 1.51%. Most analysts see greater probability that the dots converge

to the market levels, than the other way around but positions in the eurodollar

contracts are extremely large and big swings in prices can be expected.

- Commitment of Traders data shows a near record 2.03mln contracts short from

asset managers largely offsetting a big dealer long position. Dealers do not

drive prices at this tenor because Euro$ contracts are used hedge other

positions. Instead, asset manager positions tend to dominate subsequent price

action, more so than dealers or leveraged money.

- Yellen's approach is likely to emphasise the slow pace of monetary policy

tightening, allude to uncertainty in that pace and try hard to dampen any

sell-off. The main problem for bulls is if a Dec-18 rate hike stays in the dots.