The Daily Update - Rates the Fed and a Nightmare

The market moved yesterday to offer the probability of 44% for a 50bp rate cut, from 35% previously, at the Fed's meeting on the 31st July. This was on the back of four Fed members speaking, giving further clues as to what the Fed is likely to do. This is usual to see a ‘gaggle’ of Fed speakers two weeks before the meeting because come 12 o’clock tomorrow all members enter the blackout period when no further comments are allowed until after their meeting.

There is just one scheduled speaker today, Bullard, but it was Fed member Williams that caused the flurry in activity yesterday. He came out with extremely dovish comments which at one point moved two-year UST yields 5bp lower, in a matter of minutes, dramatically steepening the yield curve. Comments included: ‘don’t keep your powder dry, that is, move more quickly to add monetary stimulus than you otherwise might’ and in regard to inflation ‘My concern is inflation expectations can get anchored too low, and we may be seeing that, we have seen that in other countries’.

We do not enter the blackout period here at Stratton Street so we will keep our thoughts coming ahead of the 31st July gathering. For the record, we retain our view that a 25bp cut is most likely.

Finally, David Duval will be happy to see the back of the first day of the 148th British Open Championship. Yesterday Duval posted a 14 shot score on the par 5, 7th hole at Royal Portrush, the highest score on any one hole at the open for 69 years. It was determined that Duval lost his first two balls from the tee and then played a wrong ball for the third ball.

On discovering the mistake at the green he had to return to where the wrong ball was played, but the correct ball could not be found and so had to play again from the tee for a fourth time under penalty of stroke and distance. He played six shots in completing the hole with the fourth ball and incurred a two-shot penalty for playing the wrong ball.

Luckily, the strokes played with the wrong ball do not count in his score, Phew.

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