Key Takeaways with Craig

Markets were somewhat directionless until this afternoon’s announcement of the 25 basis point hike to the Fed Funds target rate by the FOMC.  Stocks fluctuated after the announcement, but a late afternoon sell-off led to broad losses on the day.  The major US Indexes were down by between about 1.4 % (Nasdaq) and nearly 3% (Russell 2000), while Treasury yields fell with the Micro Treasury Yield futures contracts closing near the day’s lowest levels.  The Micro 2-Year Yield future fell by about 22.5 basis points as the market tries to interpret the comments Fed Chairman Jerome Powell made after the rate hike announcement was released. 

Volatility in CME’s Equity Index and Treasury options rose this afternoon, as the aggregate Treasury CVOL index increased from about 186 to 200 and implied volatility in the E-mini S&P 500 options that expire 30 days from now increased from about 18.8% to 20%.  However, even though the aggregate Treasury CVOL level rose (remember, the aggregate takes into account the volatility in the 2,5,10 and 30 Year options), the CVOL in the 2-Year, which saw the biggest change in yield, actually declined, albeit very slightly. 

In other CME markets, perhaps correlated with the decline in yields, the US Dollar fell against most major currencies in the FX futures markets and Gold and Silver futures prices were both higher.  Gold, which had come off of recent highs, rose by nearly 2% and Silver was up by nearly 3%.  CVOL levels in CME’s FX options markets declined, perhaps as some of the uncertainty of the FOMC decision was taken out of the market. 

We’ll leave our readers with an updated version of the FedWatch graph that we printed yesterday.  The graph below, again generated with data from CME’s FedWatch tool, depicts the current probabilities reflected in the tool for the Fed Funds target rate after the May 3rd meeting.  As you can see, again, according to CME Fed Funds futures, the market is currently pricing in a slightly higher probability (54%) of no change from its new range (475-500) than another 25 basis point hike in May and virtually no probability of a rate cut at that same meeting.  

Today's Future Price Action

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