###POV: 2020 RATE CUT VISION: While markets.....>

FED: ###POV: 2020 RATE CUT VISION: While markets continue to expect the Fed

funds rate to peak in 2019 within a 2.50-2.75% range (MNI PINCH projects 2.584%

in Dec-19, vs 1.91% spot), futures are inching toward pricing in cuts in 2020.

- The spread of Dec-20 over Dec-19 Eurodollar futures turned negative Wednesday,

implying that markets now expect 3-month US deposit rates to fall in 2020.

- While the equivalent Fed Funds future spread is still positive, at just 2.5

ticks above zero it is at the cycle low, and down from 10.5 ticks in late May.

- The rate futures outlook could have a bigger bearing on Fed reconsidering

policy than the UST curve. The minutes from the June FOMC meeting pointed to Fed

research showing that near-term rate futures market spreads are a more reliable

recession indicator than the 2s10s spread for example.

- Our Washington team notes one interpretation: fiscal stimulus impact peaks in

2018-19, and drags on the economy in 2020, forcing the Fed to reverse course.

- Both EDZ9 and EDZ0 have traded fairly flat in July. EDZ0 bears watching for a

technical breakout - at 97.02, a break below support at 96.92 could quell 2020

rate cut speculation. Conversely, there is little upside resistance until 97.20.