Market is doubting the pace of Fed tightening

•     US interest rates go crazy

–    Longer-dated Fed funds futures show 18.5 bps fall in expected rate

–    36 bps range on 10-year bond (though it closes off only 6 bps)

–    Stocks had a much less agitated day (2.75% range on S&P 500)

•     Market is doubting the pace of Fed tightening

–    Shorter-dated Fed funds futures unchanged; big change starts in 2016

–    Market is concerned that with Europe slipping back into recession, Fed won’t be able to tighten as quickly as they had thought (as Fed Vice Chair Fischer said Sunday)

–    Also questioning what central banks can do to fight recession & deflation now

–    QE exhausted in US, not working in Japan, maybe impossible in Europe

•     US policy divergence remains, so USD should remain bid

–    The pace of tightening is being called into question, but not the likelihood

–    Fed takes decisions slowly; the decision to normalize rates won’t be easily set aside

•     Today:

–    Eurozone: final Eurozone CPI for September; ECB Council member Coene speaks

–    US: Industrial production for Sep forecast to have rebounded; NAHB index for Oct expected unchanged; may help USD. Four Fed speakers, including dove Kocherlakota, hawk Plosser, and centrists Lockhart and Bullard