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A “dot hike” from the Fed on the cards? - BAML

FXStreet (Guatemala) - Ralph Axel, Rates Strategist at Bank of America Merrill Lynch notes the forthcoming consensus for the US jobs report in Nonfarm Payrolls could be a catalyst for a shift in sentiment around the feds first rate hike.

Key Quotes:

"A consensus or moderately below-consensus jobs report on Friday we believe can create an even greater divergence between the market and the Fed around the latter's expected tightening cycle”.

“While such a report would result in an unchanged market or even lower yields on a weaker report, it could cause the Fed to increase its dots in next month's dot plot - a "dot hike" - which given the very large discrepancy between the market and dots should be a substantial hawkish surprise for markets."

"The unemployment rate this Friday is the key number for the Fed, and we would view a 5.9% rate, which is the consensus, as providing a great opportunity to sell the front end of the rates market, preferably using EDZ6 euro/dollar contracts or 5y Treasuries, futures or swaps. If the unemployment rate drops to 5.8% or lower, especially with a weak nonfarm headline number, our conviction in this trade would increase materially."

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