Key Takeaways with Craig
US Equity prices struggled to find a clear direction in early trade today but had moved generally higher by early afternoon as the market continues to digest yesterday’s 75 basis point hike to the Fed Funds target rate and today’s GDP reading which showed that the US economy contracted by .9%. This is the second negative GDP month in a row, which, by some definitions, would indicate that the US is in a recession. US Treasury yields fell, particularly at the short end of the curve with the Micro 2-Year Treasury Yield futures contract down by nearly 9 basis points. It was a bit of a steepening move as the Micro 10-Year Yield was down by about 4 basis points and the 30-Year was nearly unchanged.
CME Group’s Fed Funds futures contracts reacted to the GDP number as well and this was reflected in its FedWatch tool. According to the tool, which uses Fed Funds futures prices to estimate FOMC policy changes at the scheduled meeting, there is now a 75% chance of a 50 basis point hike at the September meeting. This is up from about 40% a week ago when it was reflecting a higher probability of a 75 or greater basis point hike.
We haven’t written extensively about CME’s grains futures markets here in the Key Takeaways section lately, but they have also seen volatile price action. Today, Corn Futures prices were up by about 1.5%, Wheat was up by about 2% and Soybeans were up by about .75%. To put the current price and volatility in historical context we used QuikStrike graphs of the current September levels (bright green) against the September levels at this time of year going back to 2016. The top part of each graph clearly shows that in no year since 2016 has implied volatility been this high while the lower part of the graph shows that the prices are also historically high.
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