The odds of a hike tomorrow are down to 82%

The day started with a surprise rate hike from the Reserve Bank of Australia and worries about what that could mean for the Federal Reserve Federal Reserve The Federal Reserve System, more commonly known as the Fed, represents the central banking system of the United States. Like other central banks globally, the Fed is responsible for monetary policy, in this case in the US.The Fed is one of the most watched and followed entities for forex traders, given its material impact on the US dollar. Founded initially in 1913, the Fed was created to perform a wide range of functions. This includes stabilizing and maintaining flexible monetary policy in the The Federal Reserve System, more commonly known as the Fed, represents the central banking system of the United States. Like other central banks globally, the Fed is responsible for monetary policy, in this case in the US.The Fed is one of the most watched and followed entities for forex traders, given its material impact on the US dollar. Founded initially in 1913, the Fed was created to perform a wide range of functions. This includes stabilizing and maintaining flexible monetary policy in the Read this Term.

Regional banks are sending a powerful message to tread cautiously, with some down 30% and the KRE regional bank index lower by 7%, setting off a broader wave of risk aversion Risk Aversion Risk aversion is a term used by investors in financial markets, describing the behavior by traders to avoid exposure to uncertainty or risk. The term contrasts with risk appetite, which reflects a trader's desire to increase their exposure to uncertainty or risk. Risk aversion is a common trait of investors, who seek to hesitate towards investments with an unknown payoff or outcome. These traders will opt for safer forms of investments that are either less volatile, have a more predictable outco Risk aversion is a term used by investors in financial markets, describing the behavior by traders to avoid exposure to uncertainty or risk. The term contrasts with risk appetite, which reflects a trader's desire to increase their exposure to uncertainty or risk. Risk aversion is a common trait of investors, who seek to hesitate towards investments with an unknown payoff or outcome. These traders will opt for safer forms of investments that are either less volatile, have a more predictable outco Read this Term. The Fed funds futures market is listening with the implied odds of a hike tomorrow down to 81% from close to 100% yesterday.

Further, the chance of a further hike in June has been erased and the market is pricing in 4.39% at year end from 4.75-5.00% currently.

A few days ago, Treasury officials were taking a hard line on FRC, saying it was idiosyncratic and the market largely agreed but after the equity wipeout in the sale to JPMorgan, the market is having second thoughts.

Last week, Berkshire Hathaway's Charlie Munger said, perhaps ominously:

“Every bank in the country is way tighter on real estate loans today than they were six months ago .. We have a lot of troubled office buildings, a lot of troubled shopping centres .. There’s a lot of agony out there.”

Ambrose Evans-Pritchard is also out with a column spreading fear.

For me, the Fed holding rates tomorrow would probably send a worse message to the market than hiking by 25. It would look like they know something that markets don't regarding banks. Dovish hike probably the best outcome for risk assets, which would mean a clear shift to the sidelines.