Postponing the June hike

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The jobs report was disappointing.[1] Yesterday’s probability of a June hike was 21% (and it was 30% in May 18th). In the afternoon today (Friday) it decreased to about 6%. By the end of the day, the Fed futures implied a 3.8% probability of a looming hike:

Source: CME

If you expect that the funds rate will be raised at the June meeting, and and you're ready to bet one dollar in favor of a hike, you should be asking for 26.3 dollars back if it turns out your were right. We'll know in two weeks.

How opinions shift

Just yesterday, the futures implied a 9.8% chance of two hikes by July. Today, that probability stands at 1.1%.

Also, just 24 hours ago, the probability of no hike at all this year stood at 18%. As trading concluded on Friday, the probability has more than doubled to 39%. That's an extremely quick adjustment to a single (noisy) report about the state of the economy.

The one-day jump was substantial, but markets are still not as pessimistic as they were on May 9th, which was a "peak for doves". At the time, there was a "52% chance" of no hike in 2016. So bearishness seems to be back, but not as strongly as it was just one month ago...

Update, Monday, June 6th

  1. See e.g. WSJ: Hiring Slows Sharply, Workforce Dropouts Spike, O'Brien: What that bad jobs report really means, Wolfers: The Jobs Report Is Not Quite as Terrible as It Looks, Bloomberg: Weak U.S. Jobs Report Kills Hopes for June Fed Rate Hike, What's a sustainable level of job growth? ↩︎

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