Today will be released the FOMC meeting minutes. Traders will monitor carefully any further hint about the Fed rate path until the end of the year. For the time being, markets are expecting an optimistic tome from May’s FOMC policy meeting.
Next US central bank’s meeting will be held the 14th of June. A rate hike probability is around 88.8% according to the OIS (Overnight Index Swap). It may be surprising that markets are overly optimistic despite last week’s strong arising political uncertainties and the Trump issue with the FBI.
Markets seem clearly skewed towards a rate hike, by moving (slightly) away this week from gold which prices have been declining since the start of the week losing -0.5% in the last 3 days. The US 2-year government bond rose to 1.32 Treasury yield and the US dollar is getting stronger.
Anyway, Fed’s Bullard – President of the St Louis Federal Reserve – is concerned by the weak March data and believes that the Fed rate path for this year is maybe too aggressive. When looking at the US Equity Markets, we may believe that the era of low interest rates is far from over. The S&P 500 is back around 2’400 points. We reload very short-term dollar position, the time that the EURUSD to head back towards 1.10.
By Yann Quelenn