The market wants cuts
The jitters are mounting.
It's almost time for the Fed to deliver and now the market is having second-thoughts about the aggressive pace of easing that's priced in.
The ECB didn't deliver on late speculation about a 'surprise' rate cut and Draghi revealed that it wasn't even discussed. He also sent mixed messages, saying the outlook was getting "worse and worse" while also saying "it's difficult to be gloomy today".
What makes the next move even tougher to predict is that US economic indicators haven't deteriorated to the same extent as Europe. Thursday's US durable goods report was roundly better than expectations and regional manufacturing numbers have bounced since Fed officials expressed concern.
In short, this is looking more and more like an insurance cut and less like the start of an easing cycle. However what's priced in for the next year is three full cuts with a 56% chance of four or more.
The market is adjusting today. Treasury yields are higher, stock markets are lower and the US dollar is rising against the yen.
Friday's GDP report is an important one and Powell has been a wild card in the past month but don't expect a quick turn in today's jitters.
