Markets were choppy following the largest equity selloff in a year and the retracement in Treasury yields back to November levels.
The Fed Fund futures market has now adopted the Fed’s view of tomorrow’s reality. Futures are discounting three interest rate cuts by year end, the same view as the Fed. The odds of a fourth is about 60%. About a week ago, futures had fully discounted almost six interest rate cuts.
Wow! Talk about the velocity of change.
Will the equity markets—specifically the technology sector—begin discounting expected Fed policy? As widely discussed, “growth issues” have staged an incredible advance since October on the belief (hope) the Committee will reduce rates by 150 bps by year’s end.
Today retail sales and import/export prices are released. Also posted is capacity utilization/industrial production as well as business inventories. How will the markets interpret the statistics?
The Federal Reserve has stated monetary policy will be data dependent thus suggesting every statistic may have significance.
Last night the foreign markets were up. London was up 0.04%, Paris up 0.80% and Frankfurt. up 0.65%. China was closed for a holiday, Japan up 1.21% and Hang Seng up 0.41%.
Futures are flat ahead of the data. The 10-year is up 8/32 to yield 4.23%.
Kent Engelke
Chief Economic Strategist Managing Director
The views expressed herein are those of Kent Engelke and do not necessarily reflect those of Capitol Securities Management. Any opinions expressed are statements of judgment on this date and are subject to certain risks and uncertainties which could cause actual results to differ materially from those currently anticipated or projected. Any future dividends, interest, yields and event dates listed may be subject to change. An investor cannot invest in an index, and its returns are not indicative of the performance of any specific investment. Past performance is not indicative of future results. This material is being provided for informational purposes only. Any information should not be deemed a recommendation to buy, hold or sell any security. Certain information has been obtained from third-party sources we consider reliable, but we do not guarantee that such information is accurate or complete. This report is not a complete description of the securities, markets, or developments referred to in this material and does not include all available data necessary for making an investment decision. Prior to making an investment decision, please consult with your financial advisor about your individual situation. Investing involves risk and you may incur a profit or loss regardless of strategy selected. There is no guarantee that the statements, opinions or forecasts provided herein will prove to be correct. If you would like to unsubscribe from this e-mail distribution, please reply to this e-mail and indicate that you wish to unsubscribe in your response.
