The change in Fed expectations is incredible. Two weeks ago, the market was pricing in a chance of rate cuts as early as June with the funds rate well below 4.0% by the end of the year. Fast forward to today and rates are priced at 4.65% at the December meeting, which is quite an adjustment over the span of two weeks.
The change in policy expectations is incredible but when one adds in the impact of fiscal policy and the debt ceiling, the environment is or may become very crazy indeed.
Speaking of the debt ceiling, most are expecting the drama to increase in the coming weeks. Perhaps the only environment that is more reckless than out of control spending is talks of defaulting on our national obligations.
A default would wreak havoc, perhaps causing a collapse of the financial system that is known today. It is not an embellishment to write that almost everything is priced off the dollar and the Treasury.
It is widely believed a default will not occur and all are complacent a compromise will be found albeit it may occur at the eleventh hour with lots of drama.
Commenting on yesterday’s market activity, equites were exceptionally quiet even as Treasury yields rose. The Beige Book or the statistical compilation utilized at the upcoming Fed meeting stated the economy has stalled in recent weeks, hiring and inflation has slowed and access to credit narrowed.
The Beige Book reinforced chances Fed policy makers will pause following one additional hike at the May meeting.
After the close TSLA reported results. Tesla is the second biggest member of the S & P 500 Consumer Discretionary Index (about 14%) after Amazon (27%). Bloomberg writes this index has contributed to the majority of the increase of the S & P 500.
The company nominally missed expectations as “price cuts hammered margins” according to Bloomberg sending shares marginally lower in afterhours trading and is currently down about 8% as TSLA singled more price cuts to move product.
What will happen today?
Last night the foreign markets were mixed. London was down 0.14%, Paris down 0.46% and Frankfurt down 0.81%. China was down 0.09%, Japan up 0.18% and Hang Seng up 0.14%.
S & P and NASDAQ futures are down 0.5% and 1%, respectively on profit and interest rate concerns. The 10-year is up 8/32 to yield 3.56%.
