Say goodbye to the rate hikes.
As of this morning, not only are the odds of a rate hike in 2019 zero, but according to the Eurodollar market, the odds of a March 2019 rate cut - as in less than three months - are rising, and have now hit 7%
The market is also pricing in almost one full rate cut by next March, and one full rate cut by April 2020.
There was a violent repricing in the Eurodollar market this morning following various risk negative events, from the Apple guidance cut, to FX flash crashes, to today's disastrous ISM print and the ongoing government shutdown, now in its 13th day.
However, as Bloomberg notes, the sudden shift in rates markets has raised some eyebrows, with Wells Fargo strategist Boris Rjavinsk, saying that Chairman Jerome Powell and other members of the Federal Open Market Committee are still likely to press on with hikes in March and September and that the market will shift back to pricing in tightening.
If that happens, expect chaos and mayhem in the market which will be woefully unprepared for such a move, and virtually every trader is convinced the Fed put is around 2,400 - should Powell surprise traders, and hike in the next 2-3 quarters, the shock would be on par with the Lehman collapse. And yet, Powell may have just that in mind.
“If you read the statements from the December FOMC and particularly if you listen to what Chairman Powell said in the press conference, they’re determined to fulfill their mandate,” Rjavinski said. “You can’t deny that by historical measures fund rates are still pretty low.”
Or perhaps not:as we reported earlier, in a distinct shift in sentiment, at least one non-voting Fed official appears to be advocating a less aggressive path: that would be former Goldman managing director, Robert Kaplan. The head of the Dallas Fed said Thursday that the U.S. central bank should put interest rates on hold as it waits to see how uncertainties play out.
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