MNI ASIA OPEN: Market Adjusting to Higher for Longer Stance
- MNI FED WATCH: On Hold, Waiting Longer For Inflation To Recede
- MNI INTERVIEW: Fed Cuts Likely Delayed Till November -Lockhart
- MNI INTERVIEW: Fed Poised For Higher For Longer Stance - S&P
- MNI INTERVIEW: Risk Next Fed Move Is A Rate Increase - English
- MNI US DATA: Core PCE Accelerates To 4.4% Over Three Months, Supercore 5.5%
US
INTERVIEW (MNI): Fed Cuts Likely Delayed Till November -Lockhart: The case for three Federal Reserve rate cuts this year is weakening after three consecutive months of sideways inflation data and officials are likely to push back the timing of the first move to November at earliest, former Atlanta Fed President Dennis Lockhart told MNI.
- The FOMC last month was nearly evenly split between those forecasting three and two-or-fewer cuts. But after core CPI posted its third straight 0.4% increase in March and the three-month annualized core non-housing services, or supercore, category jumped to over 8%, Fed Chair Jerome Powell said it was “appropriate to allow restrictive policy further time to work.”
- The PCE inflation measure, preferred by the Fed, is running lower than CPI but also remains elevated and increasingly looks sticky, Lockhart said. Three-month annualized core PCE inflation accelerated to 4.4% compared to the 12-month rate of 2.8%, according to Bureau of Economic Analysis data Friday.
INTERVIEW (MNI): Fed Poised For Higher For Longer Stance - S&P: Inflation is still far from the Federal Reserve's 2% target, recent data show, meaning interest rates are likely to stay higher for longer and a reduction in borrowing costs is unlikely until the end of the year, S&P Global Ratings Chief U.S. Economist Satyam Panday told MNI.
- "This does leave the Federal Reserve to pause for longer and the probability of the first rate cut does move back" to the end of the year, he said in an interview.
- The Commerce Department reported Friday core PCE inflation accelerated to 2.8% for the year, while core PCE annualized inflation reached 4.4% over the last 3 months and 3.0% over the last six months. Markets were relieved that the month-over-month increase at 0.3% was not as big as feared.
INTERVIEW (MNI): Risk Next Fed Move Is A Rate Increase - English: The Federal Reserve is likely to cut interest rates once this year, but if inflation remains sticky and the labor market does not show greater signs of easing in the next few months then the central bank could raise interest rates higher, William English, a former director of the Fed's division of monetary affairs, told MNI.
- "My most likely scenario is still that they cut rates at least once this year but it's uncertain and there's also a not insignificant chance that they'll have to raise rates," he said in an interview Thursday.
- The economy continues to look "a little bit hot" and wage growth remains above levels thought to be consistent with the Fed's 2% inflation target, English said. "Over the next few months, they may well find that they need more slack to get inflation to come back down to target and that will mean at the very least a longer period with rates at current levels."
FED WATCH (MNI): On Hold, Waiting Longer For Inflation To Recede: The Federal Reserve is expected to hold rates at 5.25%-5.5% for a sixth meeting at next week's May FOMC while acknowledging it will take longer to gain the confidence needed to cut borrowing costs later this year.
- The case for a series of cuts in 2024 is weakening after three months of firmer-than-expected inflation data, and officials are likely to push back the timing of the first move to close to the end of the year, former Fed officials told MNI.
- At its March meeting, the 19-member FOMC was nearly evenly split between forecasting three and two-or-fewer cuts. Since then, core CPI posted a third straight 0.4% increase in March and the three-month annualized core non-housing services, or supercore, category jumped to over 8%. The Fed's preferred PCE inflation measure is running lower than CPI but has also heated up since the start of the year.
NEWS
US (MNI): Biden Says He Will Participate In Presidential Debate With Trump: President Biden, speaking in a radio interview with Howard Stern today, has revealed that he is willing to participate in a presidential election debate with former President Donald Trump, reversing a long-held White House position against pre-election debates.
US (MNI): Unclear Legal Outlook For Reported Trump Fed Independence Plans: WSJ published a widely-shared reportyesterday claiming that Donald Trump’s allies “are quietly drafting" proposals to erode the Federal Reserve’s independence, if Trump secures a second term.
SECURITY (MNI): Russia/Iran To Deepen Cooperation, Raise Risk Profile In UKR & Mid-East: Russian Defense Minister Sergei Shoigu and Iranian Defense Minister Gharaei Ashtiani agreed to expand military and technical cooperation following a meeting at the Shanghai Cooperation Organization (SCO) summit in Astana, Kazakhstan, according to a Reuters report.
US-TURKEY (MNI): Erdogan Postpones Planned Washington Trip: Wires reporting that Turkish President Recep Tayyip Erdogan has postponed a trip to Washington where he was expected to meet President Biden on May 9. Bloomberg notes that the postponement is related to a change in Erdogan’s schedule and a new date will be discussed.
SECURITY (MNI): Israel: Last Chance To Secure Hostage Deal Bfore Rafah Invasion: Axios reporting that Israeli officials have told their Egyptian counterparts that Israel will give hostage negotiators "one last chance" to reach a deal with Hamas, but if there isn't progress soon it will move forward with a ground invasion of Rafah.
US TSYS PCE Data Less Hawkish in Light of Thu's Q1 Beat, Supercore Tempers Bid
- Treasuries looked to finish mostly higher Friday, curves flatter with the short end mildly weaker (2s10s -3.478 at -33.043). Intermediates trade near the middle of this morning's wide post-data range, Jun'24 10Y +6.5 at 107-18 (107-09L/107-27.5H).
- Treasury futures trade higher after the latest PCE data comes out in-line to slightly higher -- deemed less hawkish in light of Thursday's Q1 beat:
- PCE Deflator MoM (0.3% vs. 0.3%), YoY (2.7% vs. 2.6% est, 2.5% prior)
- PCE Core Deflator MoM (0.3% vs. 0.3% est), YoY (2.8% vs. 2.7% est, 2.8% prior).
- Treasuries support receded after a very strong Supercore: 0.39% M/M in Mar after 0.19 (initial 0.18) in Feb and 0.75 (initial 0.66) in Jan).
- Meanwhile, Personal Income (0.5% vs. 0.5% est, 0.3% prior), Personal Spending (0.8% vs. 0.6% est, 0.8% prior), Real Personal Spending (0.5% vs. 0.3% est, 0.4% prior).
- Treasury futures held gains after the latest University of Michigan data: Sentiment (77.2 vs. 77.9 est), Current Conditions (79.0 vs. 79.3 prior), 1 Yr Inflation (3.2% vs. 3.1% prior), 5-10 Yr Inflation unchanged at 3.0% vs. 3.0% est.
- Focus turns to next week's FOMC policy annc on Wednesday, followed by the latest employment data next Friday.
OVERNIGHT DATA
US DATA (MNI): Core PCE Accelerates To 4.4% Over Three Months, Supercore 5.5%: Core PCE inflation printed 0.32% M/M in March. That’s versus consensus of 0.3, although before yesterday’s Q1 release we’d seen 2.d.p estimates honing in on a ‘low’ 0.3. That accounts for some of yesterday’s upside surprise for Q1, with the remainder being pushed back to Jan, lifted from 0.45 to 0.50%.
- The fact some of the uplift landed early in the quarter helps explain the initially dovish FI reaction, but the still very strong run rates, especially in supercore, has helped pare those initial gains.
- 3-mth run rate: 4.4% annualized in Mar vs 3.8 (pre-revision 3.5) in Feb.
- 6-mth rate at 3.0% annualized in Mar vs 3.0 (pre-revision 2.9) in Feb.
- As Powell indicated in the discussion with Macklem on Apr 16, the Y/Y is little changed from February’s pace at a rounded 2.8 (2.82% from an upward revised 2.84), and with both the 3- and 6-mth rates running hotter suggesting no disinflationary progress.
- Supercore run rates meanwhile: 5.5% over three months (from 5.0 in Feb), 3.8% over six months (from 4.0), and 3.5% Y/Y (from 3.4).
US DATA (MNI): Stronger Spending As Consumers Run Saving Ratios Lower Again: Nominal personal income growth was as expected in March at 0.5% M/M after an unrevised 0.3% in Feb, whilst nominal spending was stronger at 0.84% M/M (cons 0.6) after an upward revised 0.82 (0.76).
- The latter’s upward surprise carried over in real terms, with 0.51% M/M (cons 0.3), after an upward revised 0.48% (initial 0.43) was offset by a larger downward revision to -0.32% (initial -0.22) in Jan.
- The net of the March beat and revisions suggests a small disconnect with the monthly estimates after yesterday’s consensus of 3.0% for Q1 vs the outturn of 2.5% (which of course is corroborated by today’s latest 3M/3M print).
- We noted after yesterday’s data the weakness in real goods consumption over the quarter (-0.4% annualized) but it was bounced back in March with a 1.1% M/M increase. On the flip side, real services spending was strong on a quarterly basis (4.0% for its strongest since 3Q21) but it faded to 0.2% M/M in March after a strong 0.6% in Feb.
- A recent tailwind from running down of saving rates: With nominal spending growth outstripping still solid disposable income growth of 0.5% M/M, the household savings ratio fell four tenths to 3.2%. It's down almost 1pp in just two months and is close to the 2.7% multi-year low seen in Jun’22.
- 1Y inflation: 3.2 in final April reading (prelim & cons 3.1) after 2.9
- 5-10Y inflation: 3.0 in final April reading (prelim & cons 3.0) after 2.8
- Consumer sentiment meanwhile dipped slightly from a first seen 77.9 to 77.2, extending the decline from 79.4 in March.
- However, from the press release: "Consumer sentiment continued to plateau and was virtually unchanged for the third month in a row. Since January, sentiment has remained remarkably stable within a very narrow 2.5 index point range, well under the 4.8 points necessary for a statistically significant difference in readings."
- "The long-run business outlook inched up to reach its highest reading since June 2021, while views of personal finances softened."
- "Different parts of the population exhibited offsetting changes this month. Republicans posted notable declines in sentiment this month, whereas Democrats and Independents did not."
MARKETS SNAPSHOT
- Key market levels of markets in late NY trade:
- DJIA up 206.69 points (0.54%) at 38294.79
- S&P E-Mini Future up 59.25 points (1.17%) at 5141.25
- Nasdaq up 342.6 points (2.2%) at 15954.41
- US 10-Yr yield is down 3.7 bps at 4.6671%
- US Jun 10-Yr futures are up 7/32 at 107-18.5
- EURUSD down 0.0029 (-0.27%) at 1.0701
- USDJPY up 2.11 (1.36%) at 157.76
- Gold is up $4.83 (0.21%) at $2337.36
- European bourses closing levels:
- EuroStoxx 50 up 67.84 points (1.37%) at 5006.85
- FTSE 100 up 60.97 points (0.75%) at 8139.83
- German DAX up 243.73 points (1.36%) at 18161.01
- French CAC 40 up 71.59 points (0.89%) at 8088.24
US TREASURY FUTURES CLOSE
- 3M10Y -2.662, -74.16 (L: -77.933 / H: -72.402)
- 2Y10Y -3.685, -33.25 (L: -36.147 / H: -29.15)
- 2Y30Y -3.164, -21.89 (L: -24.616 / H: -18.08)
- 5Y30Y -0.323, 8.84 (L: 6.565 / H: 10.436)
- Current futures levels:
- Jun 2-Yr futures down 0.25/32 at 101-13.375 (L: 101-12.375 / H: 101-16.875)
- Jun 5-Yr futures up 2.75/32 at 104-28 (L: 104-24 / H: 105-02.75)
- Jun 10-Yr futures up 7/32 at 107-18.5 (L: 107-09 / H: 107-27.5)
- Jun 30-Yr futures up 19/32 at 113-29 (L: 113-06 / H: 114-10)
- Jun Ultra futures up 24/32 at 119-22 (L: 118-26 / H: 120-09)
US 10Y FUTURE TECHS: (M4) Trend Direction Remains Down
- RES 4: 110-06 High Apr 4
- RES 3: 109-26+ High Apr 10
- RES 2: 109-19+ 50-day EMA
- RES 1: 108-18+ 20-day EMA
- PRICE: 107-18 @ 1340 ET Apr 26
- SUP 1: 107-04 Low Apr 25
- SUP 2: 106-27 2.764 proj of Dec 27 - Jan 19 - Feb 1 price swing
- SUP 3: 106-16 Base of a bear channel drawn from the Feb 1 low
- SUP 4: 106-08 3.00 proj of Dec 27 - Jan 19 - Feb 1 price swing
The trend outlook in Treasuries is unchanged and the direction is down. The contract traded to a fresh cycle low Thursday. Moving average studies are in a bear-mode set-up too, highlighting a clear downtrend. Note also that the recent consolidation appears to have been a flag formation - a bearish continuation pattern. Sights are on 106-27 next, a Fibonacci projection. Firm resistance is 108-18+, the 20-day EMA.
SOFR FUTURES CLOSE
- Jun 24 -0.005 at 94.705
- Sep 24 -0.005 at 94.840
- Dec 24 -0.005 at 950
- Mar 25 -0.010 at 95.170
- Red Pack (Jun 25-Mar 26) -0.005 to +0.020
- Green Pack (Jun 26-Mar 27) +0.025 to +0.040
- Blue Pack (Jun 27-Mar 28) +0.040 to +0.045
- Gold Pack (Jun 28-Mar 29) +0.045 to +0.050
SOFR FIXES AND PRIOR SESSION REFERENCE RATES
SOFR Benchmark Settlements:
- 1M -0.00253 to 5.31573 (-0.00117/wk)
- 3M +0.00463 to 5.32950 (+0.00310/wk)
- 6M +0.02018 to 5.31384 (+0.01094/wk)
- 12M +0.04658 to 5.24380 (+0.02929/wk)
- Secured Overnight Financing Rate (SOFR): 5.31% (+0.00), volume: $1.774T
- Broad General Collateral Rate (BGCR): 5.31% (+0.01), volume: $690B
- Tri-Party General Collateral Rate (TGCR): 5.31% (+0.01), volume: $681B
- (rate, volume levels reflect prior session)
- Daily Effective Fed Funds Rate: 5.33% (+0.00), volume: $89B
- Daily Overnight Bank Funding Rate: 5.32% (+0.00), volume: $264B
FED Reverse Repo Operation
NY Federal Reserve/MNI
- RRP usage inches up to $464.912B vs. $443.928B Thursday. Compares to $327.066B on Monday, April 15 -- the lowest level since mid-May 2021.
- Meanwhile, the latest number of counterparties inches up to 78 vs. 74 prior.
FOREX USDJPY Surges 1.3% To Fresh Cycle Highs
- With the Bank of Japan Governor seemingly playing down the Japanese Yen’s impact on inflation at today’s meeting, investors appear to have been given the green light to bolster their bearish views on the waning currency. Despite the usual two-way flurry in the aftermath of the post-decision press conference, USDJPY has resumed its strong upward bias and currently stands up 1.3% as we approach the weekend close.
- USDJPY highs for the session have been 157.79 at typing, with multiple topside targets being breached on Friday. Above here, the next notable level is 158.38, the 2.382 projection of the Feb 1 - 13 - Mar 8 price swing.
- With USDJPY leading the charge, the broader greenback found some support across US hours, with EURUSD and GBPUSD briefly slipping below Thursday’s lows.
- The USD index has risen 0.4% and despite some mixed reaction in the direct aftermath of the data, stronger-than-expected US core PCE figures may have bolstered the dollar bid.
- GBPUSD’s move higher this week was allowing an oversold condition to unwind, with trend conditions remaining bearish. A resumption of weakness would open 1.2266, the Nov 14 2023 low. Resistance to watch is 1.2583, the 50-day EMA.
- Equities have traded with a positive tone, keeping the Australian dollar as a relative outperformer with AUDUSD tracking around +0.20%. Both NZD and CAD sit mid-range, ~0.10% in the red against the dollar.
- German and Spanish CPI data kick off next week’s economic data calendar on Monday, with China PMIs highlighting Tuesday’s docket.
MONDAY DATA CALENDAR
Date | GMT/Local | Impact | Flag | Country | Event |
29/04/2024 | 0600/0800 | ** | SE | Retail Sales | |
29/04/2024 | 0700/0900 | *** | ES | HICP (p) | |
29/04/2024 | 0800/1000 | *** | DE | North Rhine Westphalia CPI | |
29/04/2024 | 0800/1000 | *** | DE | Bavaria CPI | |
29/04/2024 | 0900/1100 | ** | EU | EZ Economic Sentiment Indicator | |
29/04/2024 | 0900/1100 | * | EU | Consumer Confidence, Industrial Sentiment | |
29/04/2024 | 1200/1400 | *** | DE | HICP (p) | |
29/04/2024 | 1430/1030 | ** | US | Dallas Fed manufacturing survey | |
29/04/2024 | 1530/1130 | * | US | US Treasury Auction Result for 13 Week Bill | |
29/04/2024 | 1530/1130 | * | US | US Treasury Auction Result for 26 Week Bill |