The S&P 500 struggled to stay above water Tuesday but did manage to eke out another in a series of record highs, while Treasury yields slipped and the dollar was near flat.
Fed funds futures markets indicate a near zero probability of a cut this month and in recent days have priced the easing cycle starting at the May meeting, instead of March as previously favored. At their December meeting policy makers penciled in 75 basis point of cuts this year. That median projection would be a less aggressive loosening than the market expects from the current policy rate of 5.25%-5.50%, where it has been since July.
Meanwhile the U.S. labor market looks tight, based on Labor Department job openings data released Tuesday. While the ADP employment report comes out Wednesday the main event is the January nonfarm payrolls release on Friday, which will inform the Fed’s deliberations in March as to whether markets are in for a U.S. soft landing, no landing, or, least likely from current indications, a hard one.
“For a March cut to happen you’d have to have some pretty clear communication from the Fed laying the groundwork tomorrow, but when you look at the economic data and where the labor market is, it’s hard to have a high degree of confidence that they will see the need to cut,” said Frank Rybinski, head of macro strategy at Aegon Asset Management.
