There is still a month to go until the next Fed decision and still a lot of data in the form of NFP or inflation. Nevertheless, the JOLTS report and today's ADP or ISM suggest that the economic slowdown and disinflationary processes have clearly begun to accelerate. Moreover, Mester herself, who was known for her rather hawkish disposition, says that a May hike is not certain.
The market is now suggesting pricing in just a 10 bp hike from current levels. If the NFP comes out weaker, and inflation shows a stronger pullback, that would be a very strong basis for ending the hike. On the other hand, we have in all of this the potential for more expensive oil due to the OPEC+ decision, although at the same time, a slowdown in the US may have a greater impact on oil than a reduction in supply. With demand in trouble, less supply doesn't matter much.
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Less than 50% probability of a 25bp hike is priced in for May. At the end of the year, the rate seen at 4%. Of course, the market is probably exaggerating here, but if inflation falls harder and the economy starts to have serious problems, cuts cannot be ruled out. Source: Bloomberg
Prices from the ISM report for services suggests that service inflation excluding shelter costs should be around 4% in the year ahead. Still high, but there's a chance to stop the increases. Source: Bloomberg, XTB
Market impact
What impact could this have on the market? Potential dollar weakness and a mixed impact on Wall Street. On the one hand, the end of hikes may be positive for stock market. But economic problems are not good for companies. At the same time, it seems that with the current decline in yields, we should see further increases in gold.
