Continuing with our earlier discussion, betting against the FOMC’s dot plot accelerated on Friday, as the Fed Funds futures spiked. With the equity markets and crude oil pummeled (as deflationary risks rise again), the January 2016 contract trading volume shot to new highs, with the contract price rising sharply (implied Fed Funds rate fell).
Liquidity moves markets!Follow the money. Find the profits!
Bets against the FOMC’s forecast gained momentum after significantly worse-than-expected US industrial production and NY manufacturing reports. In fact the NY Fed manufacturing figure was so bad, many initially thought it was an error. Welcome to the world of strong US dollar …
As a result, the implied probability of 4 (or greater) rate hikes in 2016 (as predicted by the dot plot) dropped from 4.7% on Wednesday to under 1% on Friday. On the other hand, the probability of no hikes this year doubled in just two days.
This has significant implications for the US dollar and risk assets. If the Fed is indeed on hold for some time, with possibly just one hike this year (if that), we should see the dollar come under pressure and commodity prices stabilize.
Sign up for Sober Look’s daily newsletter called the Daily Shot. It’s a quick graphical summary of topics covered here and on Twitter (see overview). Emails are NEVER sold or otherwise shared with anyone.
Wall Street Examiner Disclosure: Lee Adler, The Wall Street Examiner reposts third party content with the permission of the publisher. The opinions expressed in these reposts are not those of the Wall Street Examiner or Lee Adler, unless authored by me, under my byline. I curate posts here on the basis of whether they represent an interesting and logical point of view, that may or may not agree with my own views. Some of the content includes the original publisher's promotional messages. No endorsement of such content is either expressed or implied by posting the content. All items published here are matters of information and opinion, and are neither intended as, nor should you construe it as, individual investment advice. Do your own due diligence when considering the offerings of information providers, or considering any investment.