Deutsche Bank strategists highlight that markets are pricing out early Federal Reserve easing following strong ISM Services and ADP private payrolls data. Analysts note that the probability of a June rate cut has fallen to 39% as skepticism grows that a new Fed Chair can start cutting rates straight away.

Rate cut expectations pushed back

"As all that was going on, investors got further reassurance on the outlook from the latest US data, which painted a consistently strong picture. For instance, the ISM services index rose to its highest since 2022, at 56.1 in February (vs. 53.5 expected). Moreover, the components were very positive too, with new orders surging to a 17-month high of 58.6, whilst prices paid came down to an 11-month low of 63.0."

"So the message from the print was the reverse of the stagflationary shock coming from the Middle East. On top of that, we also got the ADP’s report of private payrolls, which showed private payrolls up by +63k in February (vs. +50k expected). That was the strongest print in 7 months, so again a positive reading ahead of tomorrow’s US jobs report."

"That backdrop of strong data meant investors kept pricing out the likelihood of an H1 rate cut from the Fed. Indeed, the probability of a cut by the June meeting (which would be the first with a new Chair) fell to just 39% by the close, the lowest so far this year."

"So clearly there’s growing scepticism that a new Chair can start cutting straight away, particularly with the data as strong as it is right now."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)