Just back from the US – there is new "dimension" to market today in my opinion: The probability of Fed hiking 3-4 times as promised by Stanley Fischer and indirectly with Dudley today does not match markets probability – here is two charts to explain why:
84 bps means less than three hikes next 24 month vs a Fed at 3-4 in 2016 and same in 2017…..
This is the chance of a March hike…….
Market is nervous – and understandably so, but I think it mainly comes from the MASSIVE complacency which prevail even yesterday on the market. Every pundit on TV and in media: "loves …Europe…it's cheap!?" Really?
My S&P call for 2016 remains a wide range of 1800-2200 with 1H being nasty….. but keep an eye on the Fed hike probabilities……. There is chance for yet another…."pretend-and-extend" turn probably ignited by Draghi…..
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