Repricing Interest Rate Cuts!
We return to Fed Fund Futures, as the market has been repricing interest rate cut expectations. At the beginning of the year, there were 150bps of cuts expected by the market on the premise of a weaker economy, falling inflation, and a softer labor market. However, none of these expectations have materialized. The market has settled into a middle ground ahead of the Fed’s interest rate projections next week.
What comes next?
As we can see, the front and deferred month (December) Fed Fund Futures currently reflect a price of -0.635, equivalent to 63 ½ basis points, indicating that the market is currently pricing in 63 ½ basis points worth of cuts. This is very interesting, as the market is currently pricing in "fewer cuts" than what the Fed guided in its previous interest rate projections.
It is important to highlight that the current Fed only cuts or raises in increments of 25 basis points, so we can see a near-perfect balance between 75 basis points and 50 basis points (62 ½ would be the midpoint). This indicates that the bond market lacks confidence that the Fed will maintain 75 basis points worth of cuts in 2024.
Technical Analysis:
When observing momentum of the chart, along with the strength of the labor market, and hotter-than-expected inflation numbers, it seems we are headed toward a potential Fed projection of 50 basis points worth of cuts in 2024.
Check out CME Group real-time data plans available on TradingView here: 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 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.
What comes next?
As we can see, the front and deferred month (December) Fed Fund Futures currently reflect a price of -0.635, equivalent to 63 ½ basis points, indicating that the market is currently pricing in 63 ½ basis points worth of cuts. This is very interesting, as the market is currently pricing in "fewer cuts" than what the Fed guided in its previous interest rate projections.
It is important to highlight that the current Fed only cuts or raises in increments of 25 basis points, so we can see a near-perfect balance between 75 basis points and 50 basis points (62 ½ would be the midpoint). This indicates that the bond market lacks confidence that the Fed will maintain 75 basis points worth of cuts in 2024.
Technical Analysis:
When observing momentum of the chart, along with the strength of the labor market, and hotter-than-expected inflation numbers, it seems we are headed toward a potential Fed projection of 50 basis points worth of cuts in 2024.
Check out CME Group real-time data plans available on TradingView here: 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 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.
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