Markets Now Expect a 50bp Rate Cut This Week

Rates fall as markets anticipate the Fed’s first rate cut. Swap rates fell 3-5bps today as markets speculate that the Fed will opt for a 50bp rate cut at this week’s FOMC meeting. Rates have now fallen in two consecutive sessions after last week’s inflation data forced an earlier move higher. Elsewhere, bank stocks outperformed the broader market today, with the KRE banking ETF up 1.29%. The DJIA and NASDAQ rallied and fell ~0.55%, respectively.

Futures lean toward a 50bp rate cut at Wednesday’s Fed meeting. A 50bp rate cut has emerged as the odds-on favorite over a 25bp move at this week’s FOMC meeting. The implied rate cut size is now ~43bps, meaning the 50bp move is priced in as over 70% likely. Concerns about slowed hiring and rising unemployment have driven momentum toward the larger move. Futures currently have ~120bps of accommodation priced in for 2024.

New York manufacturing blows past estimates. Empire manufacturing unexpectedly expanded in September to 11.5, its highest level since April 2022. The data exceeded -4.7 in August and -4.0 forecasts. A rise in new orders and shipments powered the move, with a measurement of new orders at its highest level since April 2023. Shipments grew to 17.9 from 0.3 in August.