Fed Rate Increase Still on Track; Fighting to The Last Ukrainian

My focus this week: what are market expectations are for Fed rate increases, and prospects for a recession? Futures markets predictions for Fed rate increases located here.

Last week:
• July 27, 71%: 2.25% – 2.50% +0.75% vs. now
• Nov 2, 61%: 3.00% – 3.25% +1.5% vs. now

This week:
• July 27, 92%: 2.25%-2.50% +0.75% vs. now
• Nov 2, 50%: 3.25%-3.50% +1.75% vs. now

So, that’s a projected Fed rate increase – by Nov 2 – of 175 basis point total, or 25 bp higher than last week. So far, the market does not see the Fed backing off. Perhaps as a result, the Euro/USD plunged 2.32% to a new 20-year low. The flip side: a strong rally in the buck, which broke out to a new 20-year high. Money appears to be fleeing the EU for the U.S. A dollar rally = risk-off behavior.

The CRB (Commodity Research Bureau) Index made another lower-low this week; unlike Chris who sees dropping commodity prices (wheat, crude, natgas, etc) as a result of market manipulation, Ed Dowd believes that falling commodity prices are a sign of a severe recession in the offing which the markets have sniffed out, while at the same time the Fed appears determined to raise rates into the teeth of this alleged upcoming recession. I am still trying to figure out who is right. All I’m sure about: the CRB is in a downtrend. The unknown: food production shortages and possible starvation.

There was talk this week of an “inverted yield curve” which is another recession signal. I took a peek – it is getting closer, but we aren’t there just yet. 1Y=2.94%, 10Y=3.09%, 30Y=3.27%. No inversion – at least not at end of this week. But we are getting close. More-than-hints of recession.

In spite of the sharp move higher this week in the 10-year yield (up 21 bp), 30-year mortgage rates plunged, dropping a massive 40 bp (from 5.70% to 5.30%). This would seem to support the recessionary thesis. Still not sure why 30-year mortage rates plunged, while 10-year rates moved strongly higher.

There was a fair amount of fuss over the “unexpectedly good” Payrolls report: headline up 372k.