Monday, March 6, 2017

There's Certainly Uncertainty Around the Impact of Higher Interest Rates

The Federal Open Market Committee meets next week, and futures pricing says a rate hike is a virtual certainty:     click charts to enlarge...

What's is clearly uncertain on Wall Street is the impact higher rates will have on the economy. The chart below shows us that futures speculators are heavily short treasury bonds (betting rates are going up and bond prices are, thus, going down) -- and that asset managers who trade futures are, on the other hand, heavily long (suggesting rate hikes will be considered virtually out of the blocks as constraining, and leading to lower yields and, thus, higher bond prices):

While markets can forever surprise us, my best guess is that the speculators are ultimately on the right side of this particular trade. The economic data generally supports their position, and, while showing a slightly stabler picture of late, on balance, the technicals are in their favor as well:

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