CORRECTED-MNI: Fed's Hammack-Near Or At Time To Slow Rate Cuts

MNI BRIEF: Fed's Goolsbee Sees Rates Fair Bit Lower In A Year

CANADA JOBLESS RATE +6.8% VS FORECAST +6.6%, PRIOR +6.5%

MNI China Daily Summary: Friday, December 6

MNI: PBOC Net Drains CNY288.1 Bln via OMO Friday

MNI: PBOC Sets Yuan Parity Lower At 7.1848 Fri; -1.64% Y/Y

MNI: UNIV OF MICHIGAN CONSUMER SENTIMENT PRELIMINARY DEC INDEX 74.0

CANADA NOV IVEY PURCHASING MANAGERS INDEX 52.3 SA

EZ/UK Bond Supply Calendar: Austria, UK Auction on Tuesday

MNI EXCLUSIVE: EU-Mercosur Deal Close, But Likely Short-Lived - Officials

AUSTRALIA: 2025 Election Outcome Looking More Uncertain According To Newspoll

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MNI ASIA OPEN: House To Vote: $2K Upsized Relief, Veto Override


EXECUTIVE SUMMARY:

MNI INTERVIEW: BOE Policy To Regain Traction As Covid Ebbs
MNI DATA IMPACT: US Spending Expectations Highest In 4 Years
MNI BRIEF: Dallas Fed Region Manufacturing Activity Picks Up

US

US TSYS: House Vote Update, Tweet from CSPAN's Bryan Caplan:

  • HOUSE AT 4PM TODAY WILL BEGIN DEBATE ON $2,000 DIRECT PAYMENTS BILL FOLLOWED BY NDAA VETO OVERRIDE WITH THE ONLY VOTES OF THE DAY BEGINNING AS EARLY AS 5PM ET.
US DATA IMPACT: The New York Fed's survey of consumers' year-ahead spending expectations rose to 3.7% in November, the highest level since 2016 despite expectations for flat income and earnings growth next year, the bank reported Monday. The increase was driven mostly by those with household incomes below USD50,000.

US TSYS: 2021: Tsy Negative Returns Call, 5th On Record
Bloomberg's chief US rates strategist Ira Jersey posits "Treasury returns in 2021 could be negative for only the fifth time since index inception."

  • If our base scenario is realized and the curve bear-steepens, even on a relatively modest basis, long bonds could lose 18% in total return.
  • The front end, however, would experience a very small negative total return. Such moves could see the Bloomberg Barclays Treasury Index fall more than 3%, perhaps approaching the worst annual loss on record.
  • As yields rose in past interest-rate cycles, coupon income was able to absorb much of the price decline of bonds. However, with yields so low, there's little margin for error.
  • On a risk-weighted basis, the possible curve steepening would still cause the long end to underperform, and the belly (read five-year sector) would still do better than long maturities

EUROPE

UK: UK monetary policy will regain effectiveness in providing stimulus as mass Covid vaccinations and the ebbing of the pandemic restore normal economic interactions, the head of macroeconomic policy at think-tank The Resolution Foundation told MNI.

  • The enforced squeeze on supply and income loss in social spending sectors due to Covid, coupled with a surge in savings, have disarmed monetary policy, but this should regain traction as the economy emerges into a more typical downturn, James Smith said in an interview, noting that demand for monetary stimulus in the recovery phase will be strong. For more see MNI Policy Mainwire at 0443ET.

OVERNIGHT DATA

Dallas Fed Manufacturing Activity falls to 9.7 vs. 12.0 in November (10.2 est).

  • Texas factory activity picked up in December, according to Federal Reserve Bank of Dallas survey: https://www.dallasfed.org/research/surveys/tmos/20... Monday, as output, hiring and price pressures accelerated. The general business activity index edged down to 9.7 from 12.0, a tad below market expectations for 10.2, as uncertainty over the outlook rose, but production, new orders and capacity utilization indexes all rose.
  • Thirty percent of firms noted net hiring this month, the Dallas Fed said, while 10% noted net layoffs. Both raw materials and finish goods prices indexes shot up to two-year highs, and the company outlook index rose to 16.8 from 11.0.

    • MARKETS SNAPSHOT

    Key market levels in late NY trade

    • DJIA up 239.34 points (0.79%) at 30199.87
    • S&P E-Mini Future up 35.5 points (0.96%) at 3705.75
    • Nasdaq up 121.8 points (1%) at 12804.73
    • US 10-Yr yield is up 0.8 bps at 0.9314%
    • US Mar 10Y are up 0.5/32 at 137-28.5
    • EURUSD up 0.0015 (0.12%) at 1.2197
    • USDJPY up 0.41 (0.4%) at 103.56
    • WTI Crude Oil (front-month) down $0.58 (-1.2%) at $48.12
    • Gold is down $7.28 (-0.39%) at $1894.42
    • European bourses closing levels:
    • EuroStoxx 50 up 32.13 points (0.91%) at 3543.28
    • German DAX up 203.06 points (1.49%) at 13587.23
    • French CAC 40 up 66.37 points (1.2%) at 5522.01

    US TSY SUMMARY: Quiet Reversal

    Rates quietly reversed weakness to steady/mixed levels, albeit session highs on very light holiday volumes (TYH just over 550k well after the close).

    • Rate futures all the way back to Sunday evening levels -- prior to annc that Pres Trump signed Covid relief/US Govt spending bill that triggered risk appetite (note: equities climbed to new all-time highs and held gains after FI close: ESH1 +31.0 to 3726.0)
    • House scheduled to vote on upsized $2k direct relief payment at 1600ET; National Defense bill veto override vote at 1700ET.
    • Little react to weak 2Y Note auction: 0.137% high yield (0.165% last month) vs. 0.132% WI, bid/cover 2.45 vs. 2.71 previous.
    • Tsy surged after 5Y tailed as well: Weak US Tsy $59B 5Y Note draws high yld of 0.394% (0.397% last month) vs. 0.391% WI; 2.39 bid/cover vs. 2.38 prior.
    • The 2-Yr yield is up 0.4bps at 0.123%, 5-Yr is unchanged at 0.3622%, 10-Yr is up 0.5bps at 0.9281%, and 30-Yr is up 0.4bps at 1.6643%.

    US TSY FUTURES CLOSE: Late Session Highs

    Steady to mixed after the bell, futures quietly bounced back to early overnight levels -- prior to risk-on trigger when Pres Trump signed Covid relief/US Gov spending bill. Volumes exceptionally light, TYH just over 545k; yield curves steeper but well off highs.

    • 3M10Y +0.326, 84.013 (L: 83.163 / H: 87.012)
    • 2Y10Y +0.63, 80.64 (L: 80.141 / H: 83.232)
    • 2Y30Y +0.466, 154.194 (L: 153.588 / H: 158.303)
    • 5Y30Y +0.671, 130.317 (L: 129.781 / H: 132.891)
    • Current futures levels:
    • Mar 2Y down 0.125/32 at 110-15.25 (L: 110-14.75 / H: 110-15.5)
    • Mar 5Y up 0.5/32 at 126-2.5 (L: 125-31 / H: 126-03)
    • Mar 10Y up 1/32 at 137-29 (L: 137-21.5 / H: 137-30.5)
    • Mar 30Y steady at at 172-24 (L: 171-27 / H: 172-30)
    • Mar Ultra 30Y steady at at 212-18 (L: 210-21 / H: 212-26)

    US EURODOLLAR FUTURES CLOSE: Steady/Mixed

    Modest rebound in the second half, futures trading at/near session highs after the bell. Note, no LIBOR settles do to Boxing Day UK holiday, interbank rates resume Tuesday.

    • Mar 21 steady at 99.825
    • Jun 21 +0.005 at 99.830
    • Sep 21 steady at 99.820
    • Dec 21 steady at 99.780
    • Red Pack (Mar 22-Dec 22) -0.005 to steady
    • Green Pack (Mar 23-Dec 23) steady to +0.005
    • Blue Pack (Mar 24-Dec 24) steady to +0.005
    • Gold Pack (Mar 25-Dec 25) steady to +0.005

    US TSY: Short Term Rates

    Updated NY Fed operational purchase schedule, $40.2B from 1/04-1/14
    • Mon 1/04 1100-1120ET: Tsy 2.25Y-4.5Y, appr $8.825B
    • Tue 1/05 1100-1120ET: Tsy 20Y-30Y, appr $1.750B
    • Wed 1/06 1010-1030ET: TIPS 7.5Y-30Y, appr $1.225B
    • Thu 1/07 1100-1120ET: Tsy 20Y-30Y, appr $1.750B
    • Fri 1/08 1100-1120ET: Tsy 0Y-2.25Y, appr $12.825B
    • Mon 1/11 1010-1030ET: TIPS 1Y-7.5Y, appr $2.425B
    • Tue 1/12 1010-1030ET: Tsy 4.5Y-7Y, appr $6.025B
    • Wed 1/13 1010-1030ET: Tsy 7Y-20Y, appr $3.625B
    • Thu 1/14 1010-1030ET: Tsy 20Y-30Y, appr $1.750B
    • Thu 01/14 Next forward schedule release at 1500ET

    PIPELINE: 

    No new high-grade issuance since December 15; running total for month remains $52.24B

    UP TODAY

    • 29-Dec 0900 S&P CoreLogic CS 20-City MoM SA (1.27%, 1.00%)
    • 29-Dec 0900 S&P CoreLogic CS 20-City YoY NSA (6.57%, 6.95%)
    • 29-Dec 0900 S&P CoreLogic CS 20-City NSA Index (232.53, --)
    • 29-Dec 1130 US Tsy $30B 42D Bill CMB auction (9127964C0)
    • 29-Dec 1130 US Tsy $30B 119D Bill CMB auction (9127964Z9)
    • 29-Dec 1300 US Tsy $34B 52W-Bill auction (912796A90)
    • 29-Dec 1300 US Tsy $59B 7Y-Note auction (91282CBB6)

    To read the full story

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