The uncertainty of the nature of the expected this Wednesday has put the market in a wait-and-see mode. The bets for a quarter-point cut in the Fed fund overnight rate stand at 85% but are clouded by the expectations that the cut will be highly contentious internally and whether the rhetoric will be hawkish enough to bring serious doubts about any further cuts until Chairman Powell is replaced in May. The lack of complete economic data due to the catch-up from the extended government shutdown also makes reaching conclusions difficult.
The trend in interest rates is becoming more challenging. Today the is up over 4bps to 3.60%, the highest in almost a month, up 15bps in 2 weeks. The is up 5bps to 4.19%, the highest since March. The Fed has stopped its quantitative tightening this month, which involved not reinvesting maturing holdings and was expected to put downward pressure on interest rates. The Trump administration has been pushing for lower interest rates to stimulate the housing market and the overall economy, but the Fed’s only way to push mortgage rates lower is from quantitative easing, where the Fed makes open market purchases of longer maturity Treasury and mortgage bonds. So far, there has been little talk about doing that.
The higher interest rates are weighing on commodities today, with precious metals lower across the board, and crypto’s attempt at a rebound stifled, where Bitcoin hit $92.2K and then pulled back to $90.0K. gave up $60/bbl and dipped to $59.14, and natural gas is down 6.3% to below $5/mcf after almost reaching $5.50 just last week.
As the morning continues, stocks are drifting lower, and the VIX is rising. The VIX had dropped to 15.3 premarket, the lowest in 3 months, and has jumped back to 16.8 in an apparent caution over the upcoming . The only sector in the green is tech, thanks to semiconductors led by . The uncertainty is likely to continue until the Fed cut is behind us.
The trend remains cautiously positive.