GDP: What’ll The Fed Do Next?
Today’s gross domestic product figure (GDP) and lower reading on
inflation give the Fed more leeway to cut interest rates. GDP logged growth
of .8%, its lowest level since 1993 and the GDP price deflator fell
on an annualized basis to 2.3% from 3.3%.
T-bonds
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103 29/32 first resistance area from the Levels
From The Bond Pit where they formed intraday (5-minute bars) resistance.
From there bonds traded lower and have found initial support just below the
measured move objective of their intraday double top formation. The
objective here was twice the distance of the peaks to the valleys. (The
peaks are at 103 30/32, the valley at 103 23/32 therefore the first
objective was 103 16/32). The measured move objective coincided with the
38.2% retracement of the morning burst. But since the contract has traded
below this confluence in its most recent swing down to 103 14/32, T-bonds
are likely to test to the 50% retracement of the morning run, down to 103
11/32.Â
Additional micro-resistance levels reside at 104 3/32 and 104 6/32.
The next resistance level is then 104 19/32.Â
Also in debt futures, 10-years
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List, popped open and made good on an Off The Blocks
long entry.Â
The GDP report could give the Fed more leeway in
lowering interest rates and ups the ante that the Fed will be more
aggressive in cutting interest rates. But the most accurate predictor of the
Fed’s likely actions, federal funds futures contracts, are not pricing in a for-sure
cut until September. For the August meeting, the
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56% chance of a move to 3.5% from its current 3.75%. For September
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For November and December it’s the same: the [FFX1|FFX1 and
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saying there is a nearly even-odds chance of another 25-b.p. cut to 3.25%.
But that’s it; then right away next year, this market is saying the Fed will
tighten back 1/4% to 3.50%.Â
This sets up a potential trade. If the Fed is going to continue easing rates,
why won’t it proceed using its professed gradualist approach and hence, do so by
cutting a 1/4-point at its August meeting? The August federal funds futures
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PowerRating), on their highs of the day at 96.354, are pricing in only a 48%
chance of such a rate cut to 3.50% by the Fed’s August meeting.Â
At the July FOMC meeting, there were much higher hopes, an 80% chance, for a
move to 3.50%. But it didn’t happen. In July, this market way over-estimated
the Fed’s easing aggressiveness, and when they cut only .25% (again, the market
priced an 80% chance of a 50-b.p. cut), the
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appears the market is under–estimating the Fed and its professed
gradualist approach. This implies that August federal fund futures
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will move from their current 96.345 to 96.500, if the Fed maintains its
gradualist easing course. (Go to the Futures
Tools Page to see the Contract Specifications of this contract called
“30-Day Interest Rates”).
August pork bellies
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List leader, have provided Off The Blocks
entries for the past two days. As mentioned in recent commentaries, bellies have
exhibited powerful momentum recently and cold be legging higher in just leg
three of a five-wave Elliot Wave pattern. August lean hogs
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also qualifying as a momentum market due to their standing on the
New 10-Day Highs List are also making good on an Off The Blocks
entry and approaching a contract high.