Monday, October 24, 2016

Probability of Fed rate hike in December is ZERO

The official probability of a December rate hike continues to diminish over the last several days. The markets had the rate hike at about a 70 percent probability; now we’re down to about 60 percent. Personally, I think the odds are closer to zero, and over time, as we get closer and closer to that December meeting, the odds will steadily move down. Just like the Atlanta Fed keeps moving down its estimates for Q3 GDP; most recently down to 1.9%

I expect the Atlanta Fed to move lower again this week on more weak economic data. As the potential for a rate hike diminishes, gold’s appeal improving, gold prices now back above $1260 today. We’ve had a couple of back to back strong days in the gold sector. Maybe the catalyst for the recent correction in the price of gold was the renewed expectation of a November and now December rate hike. 

As those expectations are realistically dialed back, you’ll see more money moving into the metals. The dollar, though, continues to trade firm. It’s not moving higher, but it’s not really surrendering much of its gains. Maybe some of this has to do with weakness particularly in the pound.