Via Bloomberg
Despite indications from the Federal Reserve this week that a 50bps cut in July would be overcooking the goose, the rates markets have not moved very much. US Treasuries sold off on Wednesday, but the base case remains the same for three Fed rate cuts this year. The Bloomberg piece I read suggested that while bets on cuts have moderated they remain strong enough for most investors to plug into their models expectations for the Fed target range to be at 1.5% to 1.75% by the end of 2019. The yield on a third December cut has moved up, but not as far as the middle of the 25bp corridor to indicate substantial doubt. See chart below:
This G20 meeting is going to be pivotal in setting the next course. Do we have a conciliatory meeting with Trump and Xi moving towards a compromise, or do we see another kick the tariff can down the road? It is hard to see how anything less than a strong move towards a trade deal can avert a slow grind lower for the global economy. Expectation for Fed rates, and many other central banks rates, seem tied up with Trump and XI at the G20. We will get a trade truce, or a new currency war with the USD front and centre.
