Rate cuts by year-end
- Fed: 59 bps (93% probability of rate cut at the upcoming meeting)
- ECB: 14 bps (92% probability of no change at the upcoming meeting)
- BoE: 49 bps (96% probability of rate cut at the upcoming meeting)
- BoC: 18 bps (77% probability of no change at the upcoming meeting)
- RBA: 65 bps (99% probability of rate cut at the upcoming meeting)
- RBNZ: 42 bps (86% probability of rate cut at the upcoming meeting)
- SNB: 11 bps (87% probability of no change at the upcoming meeting)
Rate hikes by year-end
- BoJ: 13 bps (92% probability of no change at the upcoming meeting)
Just before the NFP report, the market was leaning on the hawkish side with just 35 bps of easing expected by year-end. Then came the NFP report and the market got a quick change of heart repricing the expectations to 59 bps of cuts before the end of the year.
As it’s usually the case, the repricing for the Fed affected all the other central banks as well given that the US financial markets and economy influence global growth and asset prices.
The market is now pretty sure that we will get at least two cuts by year-end with some chances of a third. Fed’s Daly yesterday did mention that the more likely thing is that they might have to do more than two cuts.
I think the market overreacted to the NFP and eventually the most we will get is two cuts. I also can see the market price in too many cuts again and then getting it wrong as the economic activity regains momentum after the first cut. Eventually, that could offer another mean-reversion opportunity
