Wednesday 9 January 2019

US Fed funds futures and the credit cycle

Jan 2020 Fed funds futures are currently pricing in a lower EFFR than today's one, ie pricing in a chance of a rate cut in 2019... 

The market is pricing 2.325% vs current EFFR of 2.4%... 

Meanwhile, the US labour market is blistering and corporate margins are near all-time highs. 

Perhaps the last 3 months were just about retail investors getting into a twist. Or perhaps its just post-QE valuations resetting lower in jolts. Or markets fearing a fall into the deflationary recessionary gap as the US transitions between a QE/ credit led economic cycle and a wage/ investment/ inflation cycle going forwards.

The US credit cycle is also still very strong.

As per H8 survey from end November to the 26th December bank credit grew ~11% of GDP and bank total assets (BTFD!) grew 17% of GDP annualised. That was after a strong October and November as well. 

The magic elixir of a Trillion $ late cycle deficit and still loose Fed