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FED: Federal Reserve officials are coming under pressure to define their tolerance for higher inflation much sooner than expected, as fears build of a possible short-term surge in price expectations which could test the credibility of the FOMC's newly-installed inflation make-up strategy, Fed sources told MNI.
- With vaccine breakthroughs, excess savings and another trillion or more in potential fiscal relief expected to stoke demand and price pressures, the much-feared deflation threat from the Covid-19 economic crisis has receded, sources said.
FED: FOMC Reinforces Dovish Stance Post-CPI
A few developments on the Fed front in the past 24 hours - beginning with Wednesday's tame January CPI print -have mostly put paid to lingering suspicions that the FOMC could be reconsidering its dovish monetary policy stance in light of fiscal stimulus and rising inflation expectations.
- Chair Powell's speech to the Econ Club of NY echoed Jan FOMC press conference comments that the Fed would look through transient inflation in 2021; that actual rather than expected inflation will be the key to raising rates; and and that labor market improvements in themselves are insufficient to force a monetary policy tightening. No suggestion that Powell's tune is changing.
- SF Daly's comments to the WSJ that the Fed is unlikely to taper asset purchases by end-2021, and that further stimulus as currently being discussed by Congress is not "going to overheat" the economy, should come as little surprise from a dove (and a voting one at that), but provides a salient update from a 2021 voter on FOMC perceptions of the current stimulus proposals.
- The hawks don't exactly have the cavalry coming either in the form of new appointments: Axios reported late Weds that academic economist Lisa Cook could be nominated by the Biden admin for an open Fed Board seat. Per Axios, her "academic writing suggests she is a dove, meaning she's less concerned about inflation and more focused on improving labor market condition".
- Note also that Biden as expected withdrew Judy Shelton's nomination last week - her views on the gold standard among other issues were considered unorthodox (and potentially hawkish).
Canada's new main opposition finance spokesman told MNI he can accept Prime Minister Justin Trudeau's record deficit spending for now if there's more success in tackling the Covid-19 pandemic, indicating his party will not seek to force an election.
- Conservative Finance Critic Ed Fast, a former trade minister, said in an interview late Wednesday he wants time to assess his position on the central bank. His predecessor Pierre Poilievre criticized BOC Governor Tiff Macklem including in parliamentary hearings for a QE program he suggested was recklessly printing money.
US JOBLESS CLAIMS -19K TO 793K IN FEB 06 WK
US PREV JOBLESS CLAIMS REVISED TO 812K IN JAN 30 WK
US CONTINUING CLAIMS -0.145M to 4.545M IN JAN 30 WK
- Some analysts' takes on today's weekly jobless claims data (-19k from a revised 812k last week to 793k; continuing claims -0.145M to 4.545M in the preceding week from revised 4.690M). 760k had been expected, from 779k pre-revision last week. No significant market reaction.
- Wells Fargo:" the overall picture is of a labor market recovery that is struggling to regain traction"...re the 2.6M increase in unemp insurance claims, this "not only reflects the soft patch the jobs market hit around the holidays as COVID cases spiked and restrictions were increased, but also eligibility extensions under these programs per the December fiscal relief package."
- BMO FICC: "Overall, a marginally disappointing read even as the state level continuing claims dropped to lowest of the pandemic -- insufficient to alter the broader outlook for the labor market."
MARKET SNAPSHOTKey late session market levels
- DJIA down 35.31 points (-0.11%) at 31401.12
- S&P E-Mini Future up 3.75 points (0.1%) at 3907
- Nasdaq up 32.3 points (0.2%) at 14004.28
- US 10-Yr yield is up 3.2 bps at 1.1549%
- US Mar 10Y are down 1/32 at 136-28.5
- EURUSD up 0.0017 (0.14%) at 1.2135
- USDJPY up 0.13 (0.12%) at 104.72
- WTI Crude Oil (front-month) down $0.75 (-1.28%) at $57.94
- Gold is down $17.1 (-0.93%) at $1825.68
European bourses closing levels:
- EuroStoxx 50 up 23.31 points (0.64%) at 3671.68
- FTSE 100 up 4.36 points (0.07%) at 6528.72
- German DAX up 107.94 points (0.77%) at 14040.91
- French CAC 40 down 0.98 points (-0.02%) at 5669.82
- Little react to marginally disappointing weekly claims (-19K TO 793K), continuing claims ( -0.145M to 4.545M). Rates inched gradually lower as equities held near all-time highs in early trade (ESH1 3920.5).
- Equities sold off around noon, no substantive driver but sources pointed to couple large sell-programs at the time followed by go-to excuse of asset allocation.
- Tsys sell off after weak US Tsy $27B 30Y bond auction (912810SU3) draws 1.933% high yield (1.825% last month) vs. 1.924% WI; w/ 2.18 bid/cover (2.47 prior).
- No deal-tied hedging, issuers hitting the sidelines ahead the extended US holiday weekend after $35.47B high-grade issued in first half of week. Two-way positioning, pick-up in March-June futures rolling and option-tied hedging rounding out flow so far. University of Michigan consumer confidence rounds out data for week, 80.8 exp Friday vs. 79.0 prior.
- The 2-Yr yield is unchanged at 0.1071%, 5-Yr is up 0.8bps at 0.4578%, 10-Yr is up 3.2bps at 1.1549%, and 30-Yr is up 3.6bps at 1.9435%.
US TSY FUTURES CLOSE
Futures trading weaker across the board, yield curves back near Mon highs after weak 30Y bond auction spurred decent selling in long end.
- 3M10Y +3.153, 111.09 (L: 108.512 / H: 112.262)
- 2Y10Y +3.409, 104.744 (L: 102.055 / H: 105.243)
- 2Y30Y +3.884, 183.514 (L: 178.9 / H: 184.167)
- 5Y30Y +2.721, 148.322 (L: 145.145 / H: 148.903)
- Current futures levels:
- Mar 2Y steady at at 110-15.875 (L: 110-15.75 / H: 110-16.125)
- Mar 5Y down 0.25/32 at 125-27 (L: 125-26.25 / H: 125-29)
- Mar 10Y down 2/32 at 136-27.5 (L: 136-26 / H: 137-02)
- Mar 30Y down 10/32 at 167-7 (L: 167-03 / H: 168-00)
- Mar Ultra 30Y down 25/32 at 201-10 (L: 200-31 / H: 203-02)
US EURODOLLAR FUTURES CLOSE
Futures trade steady to marginally higher in the short end, modestly weaker out the strip. Lead quarterly EDH1 steady even after 3M LIBOR set -0.00325 to 0.19763% (+0.00675/wk). Current levels:
- Mar 21 steady at 99.830
- Jun 21 +0.005 at 99.840
- Sep 21 +0.005 at 99.830
- Dec 21 steady at 99.790
- Red Pack (Mar 22-Dec 22) -0.01 to steady
- Green Pack (Mar 23-Dec 23) -0.015 to -0.01
- Blue Pack (Mar 24-Dec 24) -0.02 to -0.015
- Gold Pack (Mar 25-Dec 25) -0.03 to -0.025
US TSY: Short Term Rates
US DOLLAR LIBOR: Latest settles:
- O/N -0.00013 at 0.07975% (-0.00213/wk)
- 1 Month +0.00275 to 0.11225% (-0.00663/wk)
- 3 Month -0.00325 to 0.19763% (+0.00675/wk) ** Record Low on 2/05/21: 0.19088%
- 6 Month +0.00038 to 0.20838% (+0.00138/wk)
- 1 Year -0.00150 to 0.30363% (-0.00050/wk)
- Daily Effective Fed Funds Rate: 0.08% volume: $68B
- Daily Overnight Bank Funding Rate: 0.07%, volume: $200B
- Secured Overnight Financing Rate (SOFR): 0.06%, $884B
- Broad General Collateral Rate (BGCR): 0.05%, $357B
- Tri-Party General Collateral Rate (TGCR): 0.05%, $337B
- (rate, volume levels reflect prior session)
- TIPS 2.25Y-4.5Y, $8.801B accepted vs. $27.275B submission
Updated NY Fed operational purchase schedule, $80B from 2/12-3/11, next two wks:
- Fri 2/12 1010-1030ET: Tsy 0Y-2.25Y, appr $12.825B
- Tue 2/16 1010-1030ET: Tsy 20Y-30Y, appr $1.750B
- Wed 2/17 1010-1030ET: TIPS 7.5Y-30Y, appr $1.225B
- Thu 2/18 1010-1030ET: Tsy 4.5Y-7Y, appr $6.025B
- Fri 2/19 1010-1030ET: Tsy 2.25Y-4.5Y, appr $8.825B
- Mon 2/22 1010-1030ET: Tsy 20Y-30Y, appr $1.750B
- Tue 2/23 1010-1030ET: TIPS 1Y-7.5Y, appr $2.425B
- Wed 2/24 1010-1030ET: Tsy 7Y-20Y, appr $3.625B
- Thu 2/25 1010-1030ET: Tsy 20Y-30Y, appr $1.750B
- Fri 2/26 1010-1030ET: Tsy 0Y-2.25Y, appr 12.825B
- Date $MM Issuer (Priced *, Launch #)
- $9.55B Priced Wednesday; $35.47B/wk
- 02/10 $3.5B *Carnival 6NCL 5.75%, upsized from $2.5B
- 02/10 $2.3B *Citigroup PerpNC5 3.875%
- 02/10 $2.2B *Centene 10NCL 2.5%
- 02/10 $800M *Goldman Sachs 5NC4 +40
- 02/10 $750M *Ford Motor Cr 7Y 2.9%
Although equities stabilised and recouped the bulk of Wednesday's losses ahead of the open, US stocks saw another spell of selling pressure after the London close, with the e-mini S&P shedding around 20 points to narrow the gap with the week's lowest levels.
- Despite this, the JPY traded poorly throughout, with markets still cognizant of the risks ahead of the March BoJ rate decision, at which the Bank could stress they still have room to cut rates further into negative territory. USD/JPY was supported, although failed to take out the Wednesday highs of 104.84.
- AUD, NZD were among the best performers Thursday, with GBP at the other end of the table. AUD/USD touched a new multi-week high, with bulls now eyeing recent cycle highs printed in early January at 0.7820 for direction.
- Focus Friday turns to UK industrial/manufacturing production numbers for December as well as prelim Q4 GDP. In the US, prelim February University of Michigan confidence data is the headline. There are no central bank speakers of note.
With few macro/headline drivers, Thursday's session saw largely sideways trading in Gilts and Bunds following a strong start, with periphery spreads mixed.
- That said, BTPs were a highlight, with 10-Yr yields hitting record low at 0.45%. Italy also provided the lone supply today, and saw strong demand, esp for 3-Yr BTP.
- Friday's highlight is UK Dec GDP and components; no central bank speakers scheduled nor bond supply.
Closing yields/10-Yr Spreads to Bunds:
- Germany: The 2-Yr yield is down 0.3bps at -0.717%, 5-Yr is down 1.3bps at -0.704%, 10-Yr is down 2.1bps at -0.458%, and 30-Yr is down 1.4bps at 0.028%.
- UK: The 2-Yr yield is down 1.2bps at -0.04%, 5-Yr is down 1.8bps at 0.064%, 10-Yr is down 1.9bps at 0.47%, and 30-Yr is down 1.7bps at 1.054%.
- Italian BTP spread down 2.7bps at 91.4bps/ Spanish spread down 0.4bps at 58bps