Markets may be disappointed by lack of explicit Fed commitment to ease rates - TD Securities


"Given the market's pricing for an additional 65bp of cuts for the rest of 2019 amid renewed trade tensions, investors will be even more focused on the annual Jackson Hole Symposium next week," notes TD Securities analysts.

Key quotes

"The market will be looking for signs that the Fed is willing to cut rates more than warranted by a "mid-cycle adjustment" in policy. Investors will also be watching for any signs of change in the Fed's inflation framework."

"We don't think that the Fed will provide much new information on either front. Jackson Hole is an academic conference and not the appropriate forum to announce a change in policy. The Committee is also divided on the outlook for rates and the impact of weak global growth and trade uncertainty on the US remains uncertain."

"Finally, even though the yield curve has inverted, the S&P is only 5% off the highs and CDX IG is only 10bp wider this month. Thus financial conditions have not tightened materially. Markets may be disappointed by the lack of an explicit Fed commitment to ease rates. We think this can continue the bull flattening trend in US rates and remain long 10s and biased towards 5s30s flatteners."

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