Halister News

(Bloomberg) -- Fed’s hawkish tone on rates comes with better economic data so credit mkts are “becoming comfortable” with summer rate hike, strategists Michael Contopoulos, Michael John, Neha Khoda, Rachna Ramachandran write in note.

• Probability of summer hike has increased from less than 20% to more than 51% in the last 10 days; high yield has tightened 32bps since May 11
• BofAML, many others were concerned hawkish Fed commentary would be viewed as policy mistake and risk assets would sell off; “just the opposite has been the case this time”
• While tightening financial conditions is an appropriate response to an economy “that’s firing on all cylinders,” “we caution investors against hanging their hats on the recent economic trend”
  • Important economic metrics remain disappointing; “corporate and industrial sectors cannot seem to catch a break,” retail sales remain lackluster
  • “Too much has to go just right for spreads to not pull back from their recent rally”
• “Our equity strategists think that the stock market is not priced for a summer hike,” and “we could see a selloff in the equity markets should this happen”