Keeping rates unchanged for 2019 was the call right after the FOMC but those odds have crumbled

Right after the Fed, the interest rate probabilities still favoured rates remaining unchanged through 2019. Now those odds have changed to favour a cut (or even cuts).

  • A Jan 2020 cut is now 68% vs 47% right after the FOMC
  • Oct 2019 is when the odds switch (unch to cut). Cut is now 50.1% vs 31.3% prior
  • There’s now a 21.0% chance seen of rates being 1.75-2.0% by/at the Jan 2020 FOMC

BBG Fed odds

With US yields dropping and the market running around screaming about an inversion, we’re seeing the fear factor rising, and thus we see the reaction in markets. It’s been a while since we’ve had a full on risk off day where stocks, bonds yields and USD has suffered (all bar vs GBP which is off in lala land skipping through the flowers smoking something funny and singing to itself).

The consensus in our trading room is that these moves and the expectations aren’t justified when matched against the fundamentals. However, the market has deeper pockets than we do so now is not the time to go against it. This shift in sentiment may have some way to go and it’s our job to go with them while watching for signs they’ve gone too far. This year we’ve noticed that the market has been going far more extreme in swings when sentiment has changed. We’ve been lacking direction and any sniff of a real trend for months but this may be the start of some. We’re there’s fear,  there’s opportunity. That’s good news for us, as long as we plan for it properly.

Ryan Littlestone

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