US Rate-cut expectations were revised downward last week.
For the first time this year, markets now only see 3 interest rate cuts in 2024. This also happens to be the first time that markets align with the latest Fed guidance. Odds of a rate cut in this week are down to 2% and odds of a rate cut in May are down to ~7%. Just 3 months ago, markets saw SEVEN rate cuts in 2024 with rate cuts beginning this month. Source: The Kobeissi Letter
Financial stress is the lowest since the Fed began raising rates, which begs the question -- why cut this year? 🤔
Source: Markets & Mayhem, St Louis Fed
Some interesting quotes by Donald Trump about rates, the dollar, macro and gold thru Ronnie Stoeferle:
- "I am a low interest rate person. If we raise interest rates and if the dollar starts getting too strong, we're going to have some very major problems." - "This is the United States government. First of all, you never have to default because you print the money." - "The Dollar is too strong. Our companies can’t compete with them now because our currency is too strong. And it’s killing us." - "The golden rule of negotiation: He who has the gold makes the rules." - "We used to have a very, very solid country because it was based on a gold standard. We don’t have the gold. Other places have the gold." - "I have been complaining about currency devaluations for a long time. I believe that we will all eventually, and probably sooner than people understand or think, be on a level playing field because that’s the only way its fair."
As expected, the ECB lefts rates unchanged.
The European Central Bank approach continues to follow a data-dependent approach in determining rate path. THE STATEMENT • Inflation forecasts by ECB staff have been lowered, especially for 2024, largely due to reduced energy price pressures. Inflation is now expected to average 2.3% in 2024 and to stabilize around 2.0% in the following years; core inflation projections also revised downwards. They nevertheless say that domestic price pressures remain high, partly due to wages. They say that domestic price pressures remain high, partly due to wages. • Growth projections for 2024 have been downgraded to 0.6%, with a gradual recovery anticipated, leading to 1.5% growth in 2025 and 1.6% in 2026. • The ECB believes current interest rates, if maintained, will significantly contribute to reducing inflation and has committed to keeping rates at restrictive levels as needed. MARKET REACTION • EUR/USD is weaker on the news (to 1.0875) and EUR rates extend their move lower (they were already down every day this week, and prior to the ECB announcement). German 10y is down -7bp to 2.25% at the time we write • Rate cuts expectations are slightly increased for this year, but not massively so far (still four 25bp rate cuts by the end of the year when rounding the probabilities) OUR TAKE • Overall, this is a rather dovish statement for now - let see if Lagarde press conference will reinforces the dovish reading or if she counterbalances the message from the downward revisions on growth in inflation. Source: chart: Bloomberg
U.S. Households are now spending a record $573.4 billion on non-mortgage interest payments which for the first time in history is roughly the same as mortgage interest payments.
source : Barchart
With Powell's remarks, Wall Street's hopes for a March rate cut (once 97%) officially hit 0.
With Powell's remarks today, Wall Street's hopes for a March rate cut (once 97%) officially hit 0. "Maybe he should consider using models that have been consistently accurate, instead of listening to those who give him 'different answers' (his words) that have been consistently wrong." From : Mitchel Krause, hedgeye : With Powell's remarks today, Wall Street's hopes for a March rate cut (once 97%) officially hit 0. "Maybe he should consider using models that have been consistently accurate, instead of listening to those who give him 'different answers' (his words) that have been consistently wrong." From : Mitchel Krause, hedgeye :https://app.hedgeye.com/insights/147337-mitchel-krause-how-wall-street-s-hopes-for-march-cuts-quickly-collaps?type=guest-contributors
Interest rate cut expectations continue to scale back: Markets now see a ~38% chance of 4 interest rate cuts in 2024
Just over a month ago, the base case showed a 50%+ chance of 6 interest rate cuts in 2024. Meanwhile, odds of a March rate cut are down to 3% and odds of a May rate cut are down to 19%. For the first time in 2024, markets are close to the Fed's latest guidance of 3 cuts in 2024. Source: The Kobeissi Letter
US equities are shrugging off higher rates.
The chart below shows the level of the S&P 500 Index and the 2-year U.S. Treasury yield. Yields have risen in 2024 but unlike prior episodes of rising yields last year, the S&P 500 has moved higher as well. Past performance does not guarantee future results. Source: Edward Jones
