ZQH2025 trade ideas
50 bps here we comeThis charts reflects how well priced in (not) the futures market were regarding a determined Fed. Powell didn't even bother to put the 50 bps hike off the table. The implied probability for the fed funds rate in April is at 0.38%, that means we are now closer to 50 bps than to 25 bps.
Rate Hike Expectations....are not coming to the rescue today. Something to consider.
Explainer: The above chart maps the Federal Fund Rate future contract for April. To convert the contract to the implied yield level we need to subtract from 100.
Markets expecting a slightly more dovish FedFederal Fund Rate Futures (inverted) coming back amidst a very strong 2Y auction (High yield 0.990%, When-Issued 1.002%). A rate hike in march is still a sure thing.
50 bps?Over the last couples days the idea of a 50 bps makes is slowly seeping into the market's consciousness. Today's commentary is coming from Ackman and Bloomberg. Is this for real?
Future markets keep pushing higher, but the implied fed funds rates are thankfully still a far cry from 50 basis points.
Still though, the fact that this is even very remotely considered is concerning.
4 hikes in 2022? Not so fast.The implied fed funds rate for December came back 6 basis points today and is telegraphing a fed funds rate of about 0.88 bps, which is suggesting 3 hikes. 1.5 bps of that compression happened in the after markets and I wonder if it was Gundlach that spooked markets with his call for a recession.
Yes, in the big scheme of things (+65 bps since September) a drop of 6 bps is minuscule, but it could point to a further expansion of today's relieve rally if the CPI is playing along tomorrow morning.
Cheers.
Rate hike expectations are acceleratingI did not post a gamma update, because not much changed and that is pretty perplexing in itself. In general the markets do not want to stay in negative gamma territory and they typically do not get pinned at "put barriers". Or to think about it from another angle: Volatility does not like to move sideways on an elevated level. It's natural tendency is to shoot up and regress back. Or think about it from that perspective: Nobody holds a put for fun, since it is expensive. If markets go sideways you better close your position. Overall, the situation is not stable and my guess is that we will see a resolve in the coming days.
The situation gets more perplexing if you look at the above chart, which maps the April fed funds future contract. Right now this contract is pricing in a rate hike and that means a rate hike in March since there is no April meeting.
I would only want to hold a growth (tech) portfolio going into March if I truly had lots of confidence in the Fed, meaning I trust them to combat inflation while at the same time keeping the economy intact. Is this trust justified given their catastrophic misjudgement of inflation only a couple weeks back? Hm..
But anyways. I am just trying to understand why the markets, especially growth stocks are holding up so well and I am open to fresh perspectives. Bring it on :).
The story of the quarterThe main story of the quarter was certainly the realization that inflation is not transitory as claimed for months by the Fed and other central banks, and the final acknowledgement of their own ignorance in recent weeks.
The fed funds future markets now clearly price in a hike for May and I am wondering if the stock market is maybe similarly behind the curve regarding the consequences?
So far stocks certainly profit from the fact that yields on the long end are not moving higher with inflation expectations, but how will this situation resolve when the CBs finally take action? What is your prediction?
Rate hike odds move higherThe odds for a hike in May are now higher than at any other point since the FOMC statement.
The attached graph is inverting the Federal Fund Rate Future for May to translate it to the implied federal funds rate five months ahead.
Futures pricing out early Fed hikeNormalcy bias? Despite inflation accelerating to multi-decade highs year over year Federal Fund Futures are pricing out early Fed hikes. In the case of this chart it is the May contract which is trending downward towards the upper ceiling of the Fed band (0-0,25%). Apparently markets are happy that the headline number missed the street whisper of 7% inflation year over year.
Markets starting to price in a hike in MayEven the May contract of the Federal Funds Futures is slowly starting to price in a hike now. Yes, we have a massive short squeeze going on, but this could become a headwind going into the FOMC meeting Dec 15th.
Rate hike odds explode againRate hike odds for June (and across the board) explode again after Powell's comments. Wild swings.
Rate hikes are off the table (for now)We talk alot about rate hike expectations. While the fed funds future markets have aggressively priced in a rate hike scenario for June over the last days, those expectations have completely collapsed today. The new variant, no matter how game changing it really is, will give the Fed certainly much more wiggle room to delay any hikes. So despite the patellar reflex market reaction today, markets could interpret this as "bullish" if you will. Best case scenario for the Fed would be a virus situation that is safe enough to be considered "under control" (aka no lockdowns/travel restrictions), but on the other hand side prominent enough to dial up the uncertainty regarding the future growth/inflation path.
Woah!Rate hike expectations keep moving up explosively. Be careful. This will have consequences for risk assets.
Powell it is!Powell is the old and new king and markets now increasingly price in a rate hike for June (see Chart). Enjoy the year end rally, but brace for a potentially high vol environment next year.
CrazyIm reposting this chart because it still perplexes me. Unmich inflation expectations just posted minutes ago at 4.9%, and markets still refuse to play a clear yield hike scenario? The crazy thing is that the markets could be right, especially if Brainard takes over. Consider "Build Back Better" and infrastructure deal have not even hit supply chains.. Good times ahead!
Measuring the impact of todays inflation printUS-Senator Manchin just said minutes ago that we can not longer ignore the economic pain of inflation and todays print was another reminder that "team transitory's" credibility is eroding fast. But well, what do the markets think the Fed will do?
I took the Federal Funds Future for June (the date at which a majority of market participants see the first rate increase) and inverted it, so I get the projected rate. (100-Federal Fund Future Quote = expected rate). For clarity I also added the effective federal funds rate and the Fed target band (0-25 bps).
Enjoy.
the dollar down on negative ratesu.s FED fund futures pricing a negative rate by december 2020. and deepens lower at -0.020%
Market is calling for another Fed rate cutWe will see what happens at the March 18 FOMC but it looks like we are racing back to 0-0.25% after the tightening that helped carve out the late '18 lows.
COVID-19 effects on money marketInteresting to see this move in advance of Fed and other central bank cuts.
