Sometimes there is a situation where bad news is good news in the financial markets. After the first contraction was seen in manufacturing this week, it turns out that services sector is slowing down handily and that the job hiring that has lasted for years is becoming much more tame. All of this adds up to being bad news considering all of those endless calls of a recession being imminent.

In the department of “bad news is good news,” it turns out that two weak readings for September data and the Federal Reserve’s own forecasters dialing down GDP expectations — all of this adds up to the market calling for more interest rate cuts.

The Fed Funds rate is currently in a range of 1.75% to 2.00%, but the yield on the 10-year Treasury is back under 1.60% and the yield on the 30-year Treasury is now under 2.05%.

The CME FedWatch Tool is used as a live predictor of where the financial markets see the Fed’s target rate on fed funds. Fed Chairman Jerome Powell has remained a bit muted about an instant push for lower interest rates, and that is after endless insults and prods by President Trump for the Fed to lower rates much more aggressively.

The CME FedWatch Tool currently has a 88.2% chance that the target fed funds rate will be lowered down to a range of 1.50% to 1.75% at the October 30 FOMC meeting. With no FOMC meeting in November, the current odds of a rate cut down to 1.25% to 1.50% are 52.1% (versus 43.1% that rates will stay at 1.50% to 1.75% after the next cut).

Another way of looking at the “bad news is good news” is that China’s data has been weak and the weaker U.S. trade data may ultimately push trade negotiations into an end to the trade war in a modified trade deal that has “we can negotiate further, later” provisions in it.

The Dow Jones Industrial Average had already seen a 800 point slide in the prior two trading session, and the non-manufacturing weakness and the computers trading on news quickly drove the Dow down 300 points from where it was at the time of the news break. Then the investing community figured out that Jerome Powell’s pledge to keep the expansion going might now have to come with faster rate cuts than what Mr. Powell would prefer.

On the bright side, weekly jobless claims rose by only 4,000 to 219,000 in the last week of September and that is a sign that employees aren’t being let go in unison yet.

On last look, the Dow was up 93 points at 26,172. The S&P 500 was last seen up about 18 points (0.65% higher) at 2,906.37.

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