In Q1 2024 everything was moving up on interest rate cut bets. Q2 2024 has started off sour. It seems rate cut hopes keep getting pushed down further.
The 10 year treasury yield is rising as bets on the June rate cuts cool down.
The market is still expecting a 62% chance of a cut in June, but this number is lower than previous expectations. What is rattling investors? Inflation and its stickiness. The CPI for March 2024 will be released on April 10th 2024. This will be a big data day as it will impact the odds of a Summer rate cut. No rate cut is expected at the May Fed meeting.
By the way, Manufacturing PMI came in higher for the Month of March 2024… which tends to indicate that inflation pressure is still here.
It still is all about the data. Rate cuts aren’t as simple as the markets once thought it would be, especially with the US economy remaining strong as evident by the data.
Ears will be on the Fed President’s who continue to be pragmatic when it comes to rate cuts. Recently Cleveland Fed President Loretta Mester said she still expects rate cuts this year but ruled one out for May. Mester also indicated that the long-run path is higher than policymakers had previously thought.
“I continue to think that the most likely scenario is that inflation will continue on its downward trajectory to 2 percent over time. But I need to see more data to raise my confidence,” Mester said in prepared remarks for a speech in Cleveland.
“I do not expect I will have enough information by the time of the FOMC’s next meeting to make that determination,” Mester said.
Mester became the latest Fed official to offer assurances about the overall inflation picture, while at the same time making it clear the Fed is in no hurry to ease monetary policy.
Readers of Equity Guru have known this would be a bumpy ride. Especially now given oil prices have broken out:
Oil being the lifeblood of the economy, will definitely impact upcoming inflation numbers. Transportation costs will rise and businesses will likely pass those costs onto the consumers.
But the charts I am also watching are those of the longer term treasury yields.
These yields have printed new highs for 2024. Now this could be due to other fear reasons such as geopolitics leading to a risk off sentiment. Money leaving stocks for the safety of bonds. But it seems the markets are reacting to interest rate cut expectations. Watch these yields. A breakout could be on the cards.
The S&P 500 is dropping but the uptrend remains intact. My current higher low comes in at the 5120 zone. If this breaks, I would expect a deeper pullback and a possible shift in trend.
the Nasdaq has been choppy and has been ranging. It looks like a pullback is coming. Again, the higher low remains intact at 17,800. If we close below this level then watch out.
The Dow Jones could be showing the initial stages of a double top pattern, which is a reversal pattern. However, a close below the current higher low at 38,700 is required.
The US Dollar has been rising ever since the PMI surprise. Once again, this could be a fear move, or the markets reacting to decreased probabilities of rate cuts.
Whatever the case, you need to watch gold. A few weeks ago, mainstream financial media had headlines saying gold is making new highs on rate cut hopes. Then these have changed to gold is rising on rate cut probabilities decreasing.
Gold tends to rise when there is a confidence crisis in the government, the central banks and the fiat currency. Sure, gold also rises when things on the geopolitical stage are messed up.
All I am saying is watch gold. This price rise is telling and indicates to me that there remains a lot of uncertainty.