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“We do not inherit the Earth from our Ancestors, we borrow it from our Children.” – Crazy Horse

Morning stock market summary

Below is a snippet of commentary from today’s Morning Lineup. Start a two-week trial to Bespoke Premium to view the full report.  

US Futures are being led higher by the Nasdaq as Nvidia (NVDA) looks to rebound from its three-day decline of over 10%.  After a quiet day of economic data yesterday, today’s calendar looks a little busier with the Chicago Fed National Activity Index which was just released and came in better than expected at +0.18 versus expectations for a decline of 0.3. Still to come, the FHFA House Price Index will be released along with the Case Shiller numbers at 9 AM followed by Consumer Confidence and the Richmond Fed at 10 AM.

Fed Governor Michelle Bowman (a voting member of the FOMC) spoke in London this morning. She noted that it may become appropriate to “gradually lower the federal funds rate” if “incoming data indicate that inflation is moving sustainably toward our 2% goal” but she went on to qualify that statement with the comment that “we are still not yet at the point where it is appropriate to lower the policy rate.” She even left the door open for future increases in the fed funds rate “should progress on inflation stall or even reverse”.  While most of her comments were in line with recent commentary from other Fed officials, she took a hawkish turn when she said “I don’t see any rate cuts for 2024”.

With the caveat that market pricing of future levels in the fed funds rate has been extremely inaccurate over the past year, we wanted to look at where traders are positioned ahead of future meetings based on the CME’s FedWatch tool. Starting with the next meeting, a rate cut at the July meeting is basically off the table as the market is priced for an 89.7% likelihood that rates will be left unchanged.

The Fed has historically shied away from changing rates in the months leading up to a Presidential election, but for the September meeting, there is a slightly better than two in three chance of a cut at that meeting.

Two days after this November’s election, the FOMC will conclude another meeting, and hopefully, we’ll know who came out ahead in the Presidential election. If the Fed has historically avoided changing rates leading up to an election, the market expects them to make up for lost time at the November meeting. Not only is there a nearly 80% likelihood of at least one rate cut by then, but the market has also priced in a 30% chance that the fed funds rate will be at least 50 basis points lower. Then, for the December meeting, the market is pricing in better than a 50/50 chance of at least two 25 bps rate cuts and only a 4.7% likelihood of Bowman’s view that there will be no rate cuts by the end of the year.

To continue reading the rest of today’s morning note, where you’ll find much more analysis of global equities and economic readings released this morning, read today’s full Morning Lineup with a two-week Bespoke Premium trial.

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