In January 2024, the market had priced in more than 150 basis points worth of interest rate cuts. This suggested six 25-basis-point cuts throughout the year. Market participants believed that economic weakness was on the horizon, thus pricing in more cuts than the Fed’s Summary of Economic Projections (SEP).
Why the Change?
The continued strength of the labor market has fueled consumer spending and confidence. Energy prices have remained in focus, and natural gas prices have fallen by more than -30% year-to-date. Some may even say that inflation is reaccelerating as CPI and PPI numbers for the month of January came in hot. This has driven the bond market to slash interest rate cut expectations, putting pressure on some risk assets, but not all.
What is the Bond Market Pricing now?
As we can see from the chart above, Fed Funds futures are now pricing in 75 basis points worth of cuts in 2024, with a 73% chance of that first cut taking place in June and a 90% chance of the first cut taking place in July. The interesting thing to note here is that the bond market is now pricing in the same amount of interest rate cuts as the FOMC's latest Summary of Economic Projections (SEP). In other words, the two expectations have now converged.
Check out CME Group real-time data plans available on TradingView here: www.tradingview.com/cme/
Disclaimers:
CME Real-time Market Data help identify trading set-ups and express my market views. If you have futures in your trading portfolio, you can check out on CME Group data plans available that suit your trading needs www.tradingview.com/cme/
*Trade ideas cited above are for illustration only, as an integral part of a case study to demonstrate the fundamental concepts in risk management under the market scenarios being discussed. They shall not be construed as investment recommendations or advice. Nor are they used to promote any specific products, or services.
Futures trading involves substantial risk of loss and may not be suitable for all investors. Trading advice is based on information taken from trade and statistical services and other sources Blue Line Futures, LLC believes are reliable. We do not guarantee that such information is accurate or complete and it should not be relied upon as such. Trading advice reflects our good faith judgment at a specific time and is subject to change without notice. There is no guarantee that the advice we give will result in profitable trades. All trading decisions will be made by the account holder. Past performance is not necessarily indicative of future results.
Why the Change?
The continued strength of the labor market has fueled consumer spending and confidence. Energy prices have remained in focus, and natural gas prices have fallen by more than -30% year-to-date. Some may even say that inflation is reaccelerating as CPI and PPI numbers for the month of January came in hot. This has driven the bond market to slash interest rate cut expectations, putting pressure on some risk assets, but not all.
What is the Bond Market Pricing now?
As we can see from the chart above, Fed Funds futures are now pricing in 75 basis points worth of cuts in 2024, with a 73% chance of that first cut taking place in June and a 90% chance of the first cut taking place in July. The interesting thing to note here is that the bond market is now pricing in the same amount of interest rate cuts as the FOMC's latest Summary of Economic Projections (SEP). In other words, the two expectations have now converged.
Check out CME Group real-time data plans available on TradingView here: www.tradingview.com/cme/
Disclaimers:
CME Real-time Market Data help identify trading set-ups and express my market views. If you have futures in your trading portfolio, you can check out on CME Group data plans available that suit your trading needs www.tradingview.com/cme/
*Trade ideas cited above are for illustration only, as an integral part of a case study to demonstrate the fundamental concepts in risk management under the market scenarios being discussed. They shall not be construed as investment recommendations or advice. Nor are they used to promote any specific products, or services.
Futures trading involves substantial risk of loss and may not be suitable for all investors. Trading advice is based on information taken from trade and statistical services and other sources Blue Line Futures, LLC believes are reliable. We do not guarantee that such information is accurate or complete and it should not be relied upon as such. Trading advice reflects our good faith judgment at a specific time and is subject to change without notice. There is no guarantee that the advice we give will result in profitable trades. All trading decisions will be made by the account holder. Past performance is not necessarily indicative of future results.