FTSE: Markets Bullish on Central Bank Policy – Pricing in a 50 bp Cut from Fed

Investors are betting on a 50 bp rate cut by the Fed this week, while also perceiving a greater likelihood of a rate cut by the BoE.

The market is placing higher hopes on the Fed meeting culminating with a decision on interest rates on Wednesday to cut rates by 0.50%. The CME FedWatch calculates a 59% possibility of the Fed placing a sharp cut in its pivot moment.

That’s a sharp increase from a week ago when Fed Fund futures showed a calculation of 30% probability of a cut of 50bp. A more dovish stance from the Fed is driving the global market and trickling down to other central banks.

Action from the Fed will help the BoE turn towards loosening at a faster pace, The previous BoE meeting produced their first cut since the tightening cycle began. Investors see a small but growing chance of a back-to-back cut.

More importantly, the market will be looking for at least 2 or 3 votes from board members at the MPC meeting. A few votes in this week’s meeting gives greater chances for other members to fall in line and vote for a cut at the next meeting.

Technical View

The chart above for the FTSE shows a market in a sideways trend since last May. The range is wide, with two attempts to break higher, and one attempt to break lower. The lateral trend is also confirmed by the RSI.

Looking at the RSI, we can see that the indicator has been stuck between the range of 60 on 40 since May. The tight range for this indicator indicates the lack of momentum in either direction. The next resistance is at 8,367 (green line), which coincides with a previous high.

To the downside, the market will find support from the Ichimoku cloud, and further down at 8,036 (black line), which coincides with previous dip.

To consider a new trend as being in control, we would need to see the market close above the previous all-time high (orange line), or below the previous dip (black line).