Bonds are catching a bid as a risk-off tone plays across the market.
Aside from intraday knee-jerks in price, not much has changed. Rates and the US dollar remain range-bound. US Treasuries have yet to provide a definitive buy signal.
And the S&P 500 continues to contend with overhead supply at the 4,200 level.
It’s a chop fest.
But one data point has changed in recent sessions – the probability of a rate cut or a rate hike next month based on the fed funds futures…
Check out last Thursday’s probabilities after the FOMC raised the overnight rate by 25 basis points:
The futures market was pricing an 8.9% chance of a rate cut in June with a 91.1% chance of a pause in the hiking cycle.
Today, the conviction of a pause has only strengthened since the April CPI data release (now 98.5%).
Here’s a look at the probabilities after the April CPI print:
While the general consensus the Fed will stop hiking rates next month edged higher, a major shift away from the idea of a potential rate cut to the slightest chance of a rate hike has emerged.
Last week’s 8.9% probability of a cut has flipped to a 1.5% chance of a 25-basis-point hike. The markets have responded accordingly.
Silver is dropping (down 4.5% Wednesday morning), undercutting my risk level of 24.75. Bonds are bid. And large-cap tech is providing one of the few bright spots across the equity space.
The seven-day forecast: messy for longer.
It’s not the ideal environment for many investors or traders. But we can’t control the weather.
On the other hand, we can determine our risk and stick to our plan.
Stay strong!
Countdown to FOMC
The market is pricing in a pause in the hiking cycle following last week's 25-basis-point increase.
Here are the target rate probabilities based on fed funds futures:
