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Something for your Espresso: The bumpy road to a slowdown

As we approach the June rate decision, markets cannot find a solid footing. But neither can the FED. The stakes are high and opinions are split among decision-makers
2023-06-02

Good morning everyone!

Welcome back for the week’s last trading day!  We’re busy here at Steno Research and once again I am left to steer you through this morning with our latest takes

Yesterday’s PMI data came in below expectations, presenting yet another challenge for those leaning towards a more hawkish stance, especially as we approach the upcoming rates decision by the FOMC. At the beginning of May, markets were barely considering the possibility of another rate hike. However, with upside surprises in the data, the market-implied probability of a June hike, as reflected in OIS pricing, climbed to 60% a few days ago. Fast forward and a hint of a pause from Jefferson, and we’ve retraced below 30%. Market sentiment is highly erratic and volatile, underscoring the heightened importance of risk management in these uncertain times:

Chart 1: OIS June pricing through May
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As we approach the June rate decision, markets cannot find a solid footing. But neither can the FED. The stakes are high and opinions are split among decision-makers

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