Stocks rallied yesterday as Treasuries tumbled as data suggested a resilient consumer. Retail sales is suggesting third quarter growth can be potentially around 3.0%. The two year treasury or the treasury most sensitive to monetary policy rose to the highest level since 2011.
Against this backdrop one would think Fed Funds Futures would suggest a greater probability of Fed action at tomorrow’s conclusion of a two day Fed meeting. The futures—which are only a gauge of market sentiment—remained unchanged suggesting only a 32% probability of Fed action. This is down from 50% about a month ago when China surprised all with its nominal devaluation.
If Fed Funds Futures are only suggesting a 32% change in Fed policy tomorrow, why then did the 2 year Treasury spike to a four year high? Could I remotely suggest Treasuries are fearful of the Central Bank falling behind the proverbial curve? The data is suggesting an accelerating economy.
Will the narrative soon change to one of growth, a normalization of interest rates and declining margins but higher profits especially for those companies whose revenues are primarily derived domestically?
What will happen today? Will the CPI and NAHB sentiment survey have any impact?
Last night the foreign markets were up. London was up 1.10%, Paris up 1.43% and Frankfurt up 0.66%. Japan was up 0.81% and Hang Sang up 2.38%.
The Dow should open flat ahead of the commencement of the most recently hyped Fed meeting. Can I remotely suggest that if the Fed does increase rates there may be a case of buy on fact for the discussion of the inevitability began two years ago? The 10-year is flat at a 2.28% yield.
