Markets Feeling Dovish Before the Fed: 5 Key Charts Right Now

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Financial markets seem be increasing their dovish views with three major economic events in the next week.

The charts and news events below paint a picture of slowing economic growth and inflation. That’s making investors think the Federal Reserve will skip a rate hike next week, and potentially cut in the first quarter of 2024.

First, job openings fell to 8.7 million in October — about 450,000 fewer than expected. The total is now back to its lowest level since March 2021. That’s consistent with a weaker job market and could potentially argue against further rate hikes.

Job openings by month, courtesy of the St. Louis Fed.

Second, the yield on the 10-year Treasury note dropped to 4.17 percent yesterday. It’s the lowest level since September 1, and could reflect a belief that interest rates will decline over the longer term.

10-year Treasury yield index ($TNX.X), daily chart showing historical levels.

Third, crude oil futures (@CL) closed at their lowest price since July 20. Lower energy prices can reduce inflation.

Crude oil futures (@CL), daily chart, showing historical levels.

Fourth, the Atlanta Fed’s estimate of economic growth in the fourth quarter has dropped by almost half since late November. Slower economic growth would typically drive down interest rates.

Atlanta Fed’s GDPNow showing running estimate for the fourth quarter.

Those bring us to the fifth chart: CME’s FedWatch tool. Notice how odds of a cut in March have grown in the last week.

CME FedWatch tool, showing projected interest rates in March. Notice the change in the last week.

Here’s a lineup of the big economic events that could impact rates:

  • Friday (12/7) at 8:30 a.m. ET: Non-farm payrolls
  • Tuesday (12/12) at 8:30 a.m. ET: Consumer price index (CPI) inflation report
  • Wednesday (12/13) starting at 2 p.m. ET: Fed meeting and press conference

Finally, some news developments could keep rates lower. These headlines are also consistent with potentially slower economic growth and lower inflation:

  • Factory orders fell 3.6 percent in October, a full percentage point more than expected.
  • Moody’s placed China’s credit rating on negative outlook, citing heavy public debt levels and “persistently lower medium-term economic growth.”
  • The American Petroleum Institute said crude-oil inventories rose by 594,000 barrels, missing forecasts for a drop of 2.267 million. (Higher inventories are typically bearish for oil prices.)
  • Reuters separately reported that commodity traders see little chance of OPEC+ significantly reducing production after agreeing to only voluntary cuts last week.
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David Russell is Global Head of Market Strategy at TradeStation. Drawing on nearly two decades of experience as a financial journalist and analyst, his background includes equities, emerging markets, fixed-income and derivatives. He previously worked at Bloomberg News, CNBC and E*TRADE Financial. Russell systematically reviews countless global financial headlines and indicators in search of broad tradable trends that present opportunities repeatedly over time. Customers can expect him to keep them appraised of sector leadership, relative strength and the big stories – especially those overlooked by other commentators. He’s also a big fan of generating leverage with options to limit capital at risk.