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With continued turmoil in global equity markets and relentless selling pressure in commodity segment is pushing investors to safety of government bonds, gold and Yen and also pushing back expectations for rate hikes in 2016.
According to latest from Federal funds future,
- Market is now predicting with 71.4% probability that there would be no hikes in 2016.
- Probability for a single hike stands at 24.9%.
- Probabilities of two and three hikes are on the verge of disappearing, currently priced at 3.5% and 0.2% respectively.
- Market has given up possibility of four hikes.
So, if turmoil continues, it would be vital to watch out FOMC projections in March, especially the dotplot. In December it was predicting 4 hikes in 2016. But that stands in contrast to current market prediction of no hike.
Even in January, economists were saying, June and September could be the month for FED to hike rates. Now market is predicting with 85% probability that there would be no hikes in December.
According to us, that leaves Dollar quite vulnerable to larger correction.
Dollar index is currently trading at 96.55, down more than 2% this year so far.
