The Tip-Off To Fed’s Next Move
This morning’s employment report showed that the economy
continues to weaken and keeps the pressure on the Fed to remain on the offensive
to avert a recession.
The data from the Labor Department showed businesses cut
their payrolls at the fastest pace in 10 years as unemployment jumped to 4.5%
from 4.3%. The surprisingly weak data took markets by surprise, sending debt
futures rallying and equity index futures sharply lower.
But the key to much of the day’s action in financial
futures — tipping off the Fed’s next likely move — was the action in the June
Federal Funds futures contract
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PowerRating). This gauge has consistently been one
of the most accurate predictors of the Fed’s decisions 10 days before the Fed’s
FOMC meetings. Â
Federal Funds futures
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PowerRating) rallied to a contract
high initially, pricing in a full 50-basis-point cut for the May 15 FOMC
meeting. The FFM1 has pulled back to price in an 86% chance of a half-point cut.
To learn how to make this simple calculation yourself, see Loren Fleckenstein’s
article in the Futures Education section of TradingMarkets.com.
But after the initial shock, market participants realized
that the weak employment figures will give the Fed additional ammunition to trim
rates.
T-bonds
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High and tanked over a full point before settling 2/32 lower at 102 11/32.
Stock index futures also reversed course as lower
interest rates will help boost corporate America’s bottom line. Nasdaq 100 futures
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opened limit down but then rallied 100.00 off lows before settling up 55.00 at
1940.50.Â
S&P futures
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PowerRating) also rallied sharply
after a down start, traveling over a 35-handle range. Â
Unleaded gasoline
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closed at a new contract high, up .0132 at 1.0843. Â
Natural gas
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PowerRating),
from the Implosion-5 List,
head-faked higher then closed .037 lower at 4.490.