CME FedWatch Tool

[Fearchar]

I glance at the FedWatch tool regularly.
So, thought to make a thread of note worthy screen shots.

Currently the future markets is confident of a hike in May; 88% probability!
Then holding steady until November.
Notice, while there is a consensus, it's less than 50% starting in September.
Anyhow, after the November consensus cut, it's just cut after cut after cut for another year!
All those rapid sequential cuts appear ominous to me.

[Fearchar]

Update:

Probability of a hike May 3rd has diminished to 70.6%.

Still holding steady after that, but only until September meeting, which is expected to be a "cut".
So, the "cut" back to where we are has been moved up about 6 weeks.

After that the series of nearly consecutive cuts is practically the same all the way down to between 300-324 range.

[johntaylor]

Total guess, one more small raise?

[Capital]

Apr 27, 2023 21:37:26 GMT johntaylor said:

Total guess, one more small raise?

That's were I am right now. Not that I do not think it is a mistake, I do; but, I don't think the FED can help itself.
I am of the opinion that we are just now starting to feel the FED rate hikes.
I think the FED has already over done their rate hike cycle.
They will soon be trying to catch up the other way just as they had to catch up on the way up. 

[FD1000]

What interest me: how the Fed is going to influence my investments?
IMO, not much for months. Staying put or another 0.25% is meaningless at this point, add several months of doing nothing leads me to believe MM dist will stay high for months which is an excellent choice for traders and investors who have enough and want to use MM.

[yogibearbull]

Government m-mkt funds won't be immune to the disruptions in the T-Bill market, especially 1m vs 3m.
fred.stlouisfed.org/graph/?g=12YsU

[Fearchar]

Now that the FED's hike has been realized, I thought to check the CME FED Fund Future probabilities:




In late April the Future markets was holding steady thru the summer.
As of today, they are leaning towards a "cut" in July 26th meeting
So, holding steady for just the June 14th meeting.

Probability of a hold in June is 91%
Probability of a "cut" in July is 60%
After that it's cut, cut and more cuts.

Death by a thousand cuts!

[steadyeddy]

May 4, 2023 23:54:46 GMT Fearchar said:

Now that the FED's hike has been realized, I thought to check the CME FED Fund Future probabilities:


View Attachment

In late April the Future markets was holding steady thru the summer.
As of today, they are leaning towards a "cut" in July 26th meeting
So, holding steady for just the June 14th meeting.

Probability of a hold in June is 91%
Probability of a "cut" in July is 60%
After that it's cut, cut and more cuts.

Death by a thousand cuts!

I love this view.. I am loaded up on bonds.

Although I do not see a cut in July unless the bank contagion wipes away a whole bunch of common stock in regional banks.. or some other black swan manifests.

[steadyeddy]

The market pundits are now pontificating as to why regional banks are crumbling... not as much about deposit flight but more on commercial loans they made which are likely to take haircuts due to defaults/deferred payments.

So, if commercial RE market starts buckling I do see earlier Fed rate cuts.

[Fearchar]

Holding at current rate thru next 2 meetings; June and July.
No meeting in August.
First cut is not expected until September, which is expected to be just the first of many.

[Fearchar]

The Futures market consensus for holding rates steady has solidified and is now near 83% for the next meeting on June 14th.
0% probability of a cut in June and July.

Consensus is near 81% for holding rates steady during the July 26 meeting as well.

A cut is expected by a slim consensus of 52% in November.

So, market expectations of the duration of the hold has gained a month already.

Keep in mind, that the FED really should have cuts rates back in March when the banking crisis first hit.
That's when the bond market cut long term rates.

As mentioned in other threads, history points towards the market bottoming out after the 1st cut.
So, it appears that the upcoming bottom is being pushed out as well.
No idea right now as to the magnitude of that bottom.
However, my impression is that the longer this gets drawn out, the more severe will be the drawdown.

[FD1000]

While last year + the beginning of 2023, I paid attention, I stopped looking at the CME tool.  The Fed is out and resting for months to come.
It's called cut to the chase. 
The tool can't help me in the following months.

[Fearchar]

May 20, 2023 15:16:54 GMT FD1000 said:

While last year + the beginning of 2023, I paid attention, I stopped looking at the CME tool.  The Fed is out and resting for months to come.
It's called cut to the chase. 
The tool can't help me in the following months.

FD;  Yeah.  I think this hints at one of the challenges of these boards.

That is to find research that is mutually beneficial as opposed to just another difference in opinion.

[yogibearbull]

When Powell (or the Fed) says that market expectations differ from Fed guidance, that reference to market expectations is to CME FedWatch. So long as there is variance, the CME FedWatch data are useful to monitor. Beware that it changes in real-time and day-to-day. I also report it weekly in Barron's Part 1 that captures the readings after the market close on Fridays.

[FD1000]

I didn't explain myself well. I always listen to the Fed but the CME tool variance now and in the next several months is from doing nothing to 0.25.  In my world, it stopped being one of my top indicators for trading. After all, these boards and/or investors that trade care about it. If you don't trade or hardly trade, then there not much to watch.
On the other hand, the charts now, at least for me, are more significant. 
I try to spend the least amount of time and find the easiest/quickest way to make conclusions and trade accordingly.

[fishingrod]

There is doubt creeping into the market. Probabilities of no more raises are wavering.

www.cmegroup.com/markets/interest-rates/cme-fedwatch-tool.html?redirect=/trading/interest-rates/countdown-to-fomc.html

[steadyeddy]

I think the Fed may pause for a month or two but the rates will go higher. This beast of inflation is not being killed fast enough.

I am raising more cash out of my positions.

[Fearchar]

It's been just a week, and the futures market has shifted.
The consensus is for a hold June 14th, but with a 58% probability of a hold and 41% for a hike hike, it's not nearly as convincing as was last week.  So, there has been a mood change.

The consensus for a hike in July is 66%% followed by a weaker consensus for a hike in September.
After that, while there is consensus, there remains a strong tendency expecting a long series of cuts.

[FD1000]

Looking at the CME tool and I see...another 0.25% increase, and another 0.25 decrease for 2023. A pretty much of nothing.

[yogibearbull]

After several weeks of thinking that the Fed is done for now, the expectations shifted THIS week that POWELL Fed isn't done yet. Is it just another +25 bps, as the CME FedWatch shows now, or are there more hikes to come? Dollar has strengthened on debt-ceiling deal expectations. So, if things don't collapse in a few days from the debt-ceiling fiasco, more rate hike(s) are coming. Anyway, such shifts are important.

There are now posts here and elsewhere on tech performance, and severe lag by income funds - dividend-oriented, equity-income, utilities, allocation/balanced funds.

[Fearchar]

yogibearbull;

I agree and the tool shifted significantly more since yesterday.

It's now showing:

64.25% probability of a hike June 14th
79.32% probability of a hike July 26th
67.83% probability of a hike September 20th

November 1st meeting is all over the place.

No consensus, but 24% probability of cuts down to the 375-400 basis point range by November 2024.

[FD1000]

May 27, 2023 11:26:14 GMT Fearchar said:

yogibearbull;

I agree and the tool shifted significantly more since yesterday.

It's now showing:

64.25% probability of a hike June 14th
79.32% probability of a hike July 26th
67.83% probability of a hike September 20th

November 1st meeting is all over the place.

No consensus, but 24% probability of cuts down to the 375-400 basis point range by November 2024.

View Attachment

The above could be interpreted as a 3 time 0.25% hikes. The reality is that we are talking about ONE hike of 0.25%.
Right now the Fed fund rates is 5-5.25%.
For June-July-Sep it's 5.25-5.5
For Nov-Dec back to 5-5.25.

"significantly" means a big change. You want to see a real significant change? If the Fed says it will raise 0.75-1% by year end, stocks+bonds will go down pretty quickly, hence = significant. 0.25% has never been significant change within 8 months (May to Dec).

SPY could lose any time after a quick up performance.
So now I look at my cloudy crystal ball for bonds. My chart hints there is a higher chance bond funds will make money in the next 2-4 months. Again, if 0.25% is significant bond funds should be down 2-3% from here in weeks. The market is in a semi-hold waiting the debt-ceiling solution.
Just another opinion.

Attachments:

[Fearchar]

FD1000,

We could easily bat around the meaning of the word "significant".
I called it so because it resulted in a visible change in chart colors, but the real question
is whether or not it changes what I agree is typically our rather cloudy view of the future.

I believe there remains a relatively high risk of an economic and market correction about 6 months from now.
A rate hike, however small, is not going to cure that.
While there is no consensus for the timing of rate cuts, there appears to be a consensus they are in the future. 
So, here we have the odd situation where the futures market mostly agrees the FED will go the wrong way with rates over the near term.

I agree that this could be a bullish scenario for longer term rates because in general, as rates fall, bonds rise.
Curious why ORNAX, a front loaded high yield municipal bond?  Wouldn't the Load preclude trading?

Also, isn't it possible, that we are currently living in a scenario similar to April-August 2008?

[FD1000]

The CME predicts zero rate change by year end. First we go up 0.25% and then down. It means no effect.
Future economy isn't effected by zero change, the exact future economic situation is unknown.
As usual, I care only about one thing, and one thing only. How to make money with lower risk/volatility. This is why we are here.
Zero change in future Fed funds will have INSIGNIFICANT effect on my decisions. This is contrary to what happened continueasly for more than a year when the Fed decisions were very high on my list. It is one of my main indicators for my big picture. Unemployment, inflation until year end are more important than the Fed rate, but none have changed my big picture of "normal" since 11/2022.

When was the Fed rate significant? In 01/2022 when I sold everything because the CME predicted major hikes. Then 11/2022 when I was invested back at 99+% when the CME predicted the end of major hikes.

ORNAX doesn't have any loads, it is one of my HY muni funds I have been using.

[Fearchar]

Now that the FED has paused hiking, thought I would check out the futures market outlook:

Probability of a hike in July is 72%.
Probability of a hold/hikes in September thru November are 76% and 73%.
Statistical consensus for December is a bit weaker at ~56%.

So, it is now looking like January 2024 for "1st cut".
That would be back to our current rate followed by a series of nearly consecutive cuts for remainder of the year.

Keep in mind, this is only the current market thinking.
Futures market thinking changes regularly.

[yogibearbull]

CME FedWatch is quite far from the Fed narrative of possibly 2 MORE hikes in 2023 and NO CUTS for almost 2 years. The Fed Open Mouths would have to do a lot of jawboning to bring it in line.

[anitya]

Jun 17, 2023 10:37:49 GMT yogibearbull said:

CME FedWatch is quite far from the Fed narrative of possibly 2 MORE hikes in 2023 and NO CUTS for almost 2 years. The Fed Open Mouths would have to do a lot of jawboning to bring it in line.

It seems to be a very narrow path to those outcomes to be simultaneously true.  I would think probabilities are in favor of one or the other.  If so, may be it is time to start increasing duration on at least part of the fixed income portfolio away from MM.  No?

[anitya]

Jun 17, 2023 18:55:08 GMT anitya said:

Jun 17, 2023 10:37:49 GMT yogibearbull said:

CME FedWatch is quite far from the Fed narrative of possibly 2 MORE hikes in 2023 and NO CUTS for almost 2 years. The Fed Open Mouths would have to do a lot of jawboning to bring it in line.

It seems to be a very narrow path to those outcomes to be simultaneously true.  I would think probabilities are in favor of one or the other.  If so, may be it is time to start increasing duration on at least part of the fixed income portfolio away from MM.  No?

Does anybody off hand know target date Treasury bond / Notes ETFs that basically mature on a specified date (and then could get rolled over)?  I have a clutter of Bills and Notes. As they mature I would like to consolidate into desirable Duration ETFs that would ideally be liquid as well.  If they have more than 0.10% ER, I think they are not economical.

[yogibearbull]

anitya , target-maturity ETFs would be farther out and will have more headaches than worth.

Just let maturing T-Bills/Notes sit in core/settlement m-mkt funds (SPAXX at Fido, VMFXX at Vanguard) and may be buy ultra-ST bond fund such as ICSH.

At Schwab, you have to manually buy Schwab m-mkt fund or ICSH.

[anitya]

yogibearbull ,

Thanks.

It turns out iShares has target date Treasury bond ETFs. IBTD matures on Dec 2023 and IBTE matures on Dec 2024 and so on. This series currently goes up to IBTM. AUM is too small past IBTG. 0.07% ER reasonable. IBTD currently has 11% cash, which makes this a flawed product. I would have thought they could muster a few billion $ bonds maturing no sooner than Dec 23 so they do not have to carry that much cash 7 months into the year of maturity.

Hopefully, somebody else has a better product.