Word on the street is that the Fed doesn’t want to make waves in order to maintain calm in the markets. The zero percent chance of a rate hike today, 23% chance at the next meeting in June, and 71% chance by year’s end just confirm what history has repeatedly shown: rates aren’t going up before the election. Anything short of runaway inflation will be brushed off by middle-aged folks in New York crying “serenity now”.
The Pending Home Sales report out today shows a 1.4% expansion rate, slower than last month’s 3.4% growth but well above the 0.3% crawl expected.
All day long, I get asked what pattern I am seeing with interest rates and what is coming next. When Bonds fall beneath long-term solid support as they have during the month of May, the trading activity typically becomes volatile due to everyone’s uncertainty of the next directional price move–which is typically swift. The Bears, who just pushed prices below resistance, keep selling in an attempt to capitalize further, AKA “shorting” the market. Conversely, the Bulls are trying to pull Bonds back higher to increase their gains–or regain their losses. The Bears currently have the upper hand as the 200-day Moving Average now acts as a strong ceiling of resistance. Clients should understand that rates will not improve unless the Bond can bust back above what is presently a strong resistance layer–the last penetration of the 200-day MA was in March 2014. But rather than bore you with another chart showing all of that, I thought that it might be refreshing to insert yourself into this peaceful scene for a moment.