Authored by Mike Shedlock via MishTalk.com,
The Eurodollar curve implies four quarter-point cuts are on the way starting in 2023. The Fed believes otherwise. Let's discuss stock market implications.
Data from CME and Fed via Wall Street Journal.
Eurodollar Curve
The eurodollar curve has nothing to do with euros or dollars. Rather it is an interest rate curve and one of the world's most widely traded futures.
After peaking at about 3.9% this year, eurodollar betters believe the Fed will then cut rates all the way down to 2.8%.
Five Not-Quite-Impossible Things the Market Believes
Wall Street Journal Contributor James Macintosh discussed the above chart in Five Not-Quite-Impossible Things the Market Believes
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Inflation is transitory.
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The Fed realizes this in time.
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The jobs market cools enough to slow wage rises.
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But not so much it means falling household spending.
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So consumer spending rises in real terms.
In reference to the led chart, Macintosh says "The first assumption is the hardest to believe."
I disagree. The hardest thing to believe is the overall goldilocks scenario and that the current rally makes any sense at all.
Inflation may easily come down if the Fed tightens too much too fast causing a severe recession. What would that do to corporate profits?
But assume otherwise, that inflation does not come down more. What would that do to corporate profits?
While any of the first three points may easily be correct, the combination of all five being correct and that stocks will rise in a goldilocks scenario is...