Market View Shifts Again

In recent times, it’s hard to remember an upcoming Fed rate decision which has seen more swings market expectations. Market pricing for a further hike in June has jumped back and forth several times over the last month and, even this week. Starting the week with a rate hike priced at around 60% likelihood, comments from Fed officials yesterday have now seen that pricing flip on its head with the market pricing around a 60% chance of rates staying on hold.

Hawkish Pause

Speaking yesterday, Fed’s Jefferson was seen laying the groundwork for a pause in June, albeit a potential “hawkish pause.” Jefferson noted that there was a strong case for a further rate hike to be skipped at the June meeting though noted that this wouldn’t necessarily mean the end of the Fed’s tightening cycle. Jefferson noted that holding rates unchanged would allow the market more time to see incoming data before making any further policy adjustments.

View From Powell?

Given Jefferson’s nomination as vice chair of the Fed, the message has been viewed as likely coming from the leadership with many noting that Powell likely approved of the comments. Given Powell’s recently voiced support for a slower pace of tightening, this would make sense. In light of the subsequent shift in expectations, US stocks are starting to rally again while the Dollar has started to weaken. Tomorrow’s jobs data will likely be seen as the final decided and as such we can expect plenty of volatility across US markets.

Technical Views

Nasdaq

Following the breakout above the 14288.2 level, the Nasdaq has softened a little from highs. However, while still within the broad bullish channel the focus remains on further upside while key support at 13752.6 holds. Only a break below there will signal a potential shift in trend.