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- MNI INTERVIEW: Inflation Drop Looks Sustainable-Fed’s Wright
- MNI BRIEF: FOMC Prepared To Hike More If Data Strong -Powell
- MNI BRIEF: Fed 'Firm' On Keeping 2% Goal - Powell
- MNI FED: Powell: Main FOMC Message Is Disinflation Has Begun But Early Days
- MNI FED: Potential Over Focus On FOMC 'Probably' Needing To Hike Further
US
FED: U.S. inflation looks set to moderate steadily in coming months, allowing the Federal Reserve to soon pause monetary tightening before holding rates at cycle peaks at least through 2023, St. Louis Fed economist Mark Wright told MNI.
- “I’m fairly confident that inflation is sustainably on a downward path,” said Wright, senior vice president at the St. Louis Fed, told MNI in a FedSpeak podcast interview. “The conditions are ripe for inflation to continue steadily declining for the next 12 months.”
- He noted the Fed’s preferred PCE measure of inflation has fallen to 5% in the year to December from peaks above 7% in the summer, while core PCE had also moderated to 4.4%. “Both of those are heading in the right direction,” said Wright, a former research director at the Minneapolis Fed.
- The Fed raised interest rates by a quarter percentage point to a range of 4.5-4.75% last week, reducing the pace of tightening from previous moves but indicating that “ongoing increases” would be appropriate. Fore more see MNI Policy main wire at 1219ET.
FED: The FOMC would be prepared to raise interest rates more than investors expect if data come in stronger than anticipated, Federal Reserve Chair Jerome Powell said Tuesday after a surprisingly resilient January jobs report.
- The "extraordinarily strong" labor market data reinforce the FOMC's view that reining in inflation will take some time, he said. "We didn't expect it to be this strong, but I would say it kind of shows you why we think that this will be a process that takes a significant period of time," he told the Economic Club of Washington.
- "If the data were to continue to come in stronger than we expect, and we were to conclude that we needed to raise rates more than is priced into the markets, or than we wrote down at our last group of forecasts in December, then we would certainly do that. We would certainly raise rates more."
FED: Federal Reserve Chair Jerome Powell said Tuesday the central bank is aiming to bring down inflation to its 2% goal and is "firm" on keeping that target and not raising it to 3%. "Two percent Is the global standard and that is our objective, 2% percent as measured by the PCE index," he said. '"That's just, that's not something we're looking at changing."
FED: Paraphrasing Chair Powell: Main message from Wednesday was that disinflationary process has begun but it's very early. This process is likely to take quite a bit of time. Then comes the labor market report for January, it's certainly stronger than anyone expected. But I would say it shows you why this will be a process that takes a significant period of time.
FED: Mention of probably in the main Bloomberg headline of *POWELL: PROBABLY NEED TO DO FURTHER INTEREST-RATE INCREASES is possibly helping dovish reaction but not wildly different to language from the presser. This from Wed Q&A: "You know, we've raised rates four and a half percentage points and we're talking about a couple of more rate hikes to get to that level we think is appropriately restrictive. And why do we think that's probably necessary?"
US TSYS: $40B 3Y Note Sale Tail, $37B Corporate Debt Issuance Weighed on Tsys
Another whip-saw session for US FI markets, weaker/near late session lows after extending gains immediately after Fed Chair Powell, Economic Club of Washington interview. No react to Trade Balance (-$67.4B vs -$68.5B est) or Redbook Feb store sales (+4.3%).
- Initial risk-on reaction to Powell saying disinflationary process has begun but it's very early. Risk-on short lived as Powell reiterated the process is likely to take quite a bit of time. Then comes the labor market report for January, it's certainly stronger than anyone expected. But I would say it shows you why this will be a process that takes a significant period of time.
- Treasury futures scaling back (Chair Powell-tied) support after $40B 3Y note auction (91282CGL9) tailed 4.3bp: 4.073% high yield vs. 4.035% WI; 2.33x bid-to-cover vs. 2.84x last month.
- Tsys pressed on incoming corporate bond issuance, $11B Intel 7pt jumbo, foreign banks and sovereign wealth fund multi-tranche issuance totaled over $37B Tues, spurring early rate lock selling across the curve.
- Cross asset: US$/Yen sold off earlier, Gold bounces while Crude has been marching higher last couple hours (WTI +3.20 at 77.31).
OVERNIGHT DATA
- US DEC TRADE GAP -$67.4B VS NOV -$61.0B
- US REDBOOK: FEB STORE SALES +4.3% V YR AGO MO
- US REDBOOK: STORE SALES +4.3% WK ENDED FEB 04 V YR AGO WK
- US DEC CONSUMER CREDIT +$11.6B
- US DEC REVOLVING CREDIT +$7.2B
- US DEC NON-REVOLVING CREDIT +$4.4B
- CANADIAN DEC TRADE BALANCE CAD -0.2 BILLION
- CANADA DEC EXPORTS CAD 63.0 BLN, IMPORTS CAD 63.1 BLN
- CANADA REVISED NOV MERCHANDISE TRADE BALANCE CAD -0.2 BLN
MARKETS SNAPSHOT
Key late session market levels:
- DJIA up 181.41 points (0.54%) at 34073.11
- S&P E-Mini Future up 40.75 points (0.99%) at 4164.5
- Nasdaq up 179.1 points (1.5%) at 12066.39
- US 10-Yr yield is up 3.7 bps at 3.6773%
- US Mar 10-Yr futures are down 8.5/32 at 113-7.5
- EURUSD down 0.0007 (-0.07%) at 1.0719
- USDJPY down 1.44 (-1.09%) at 131.22
- WTI Crude Oil (front-month) up $3.22 (4.34%) at $77.33
- Gold is up $1.53 (0.08%) at $1869.02
- EuroStoxx 50 up 3.86 points (0.09%) at 4209.31
- FTSE 100 up 28 points (0.36%) at 7864.71
- German DAX down 25.03 points (-0.16%) at 15320.88
- French CAC 40 down 4.75 points (-0.07%) at 7132.35
US TSY FUTURES CLOSE
- 3M10Y +0.006, -103.17 (L: -112.295 / H: -101.673)
- 2Y10Y +3.907, -79.968 (L: -83.666 / H: -78.105)
- 2Y30Y +4.443, -76.067 (L: -80.134 / H: -72.097)
- 5Y30Y +2.68, -12.97 (L: -15.659 / H: -7.759)
- Current futures levels:
- Mar 2-Yr futures down 1.25/32 at 102-10.375 (L: 102-10.125 / H: 102-15.625)
- Mar 5-Yr futures down 3.75/32 at 108-8.75 (L: 108-07.75 / H: 108-23.5)
- Mar 10-Yr futures down 8.5/32 at 113-7.5 (L: 113-06.5 / H: 113-28)
- Mar 30-Yr futures down 23/32 at 128-9 (L: 128-07 / H: 129-11)
- Mar Ultra futures down 1-06/32 at 140-15 (L: 140-14 / H: 142-02)
US 10YR FUTURE TECHS: (H3) Bear Cycle Extends
- RES 4: 116-00 High Feb 2
- RES 3: 115-22+ High Feb 3
- RES 2: 114-18 20-day EMA
- RES 1: 114-11+ High Feb 6
- PRICE: 113-15+ @ 11:46 GMT Feb 7
- SUP 1: 113-10+ Feb 6 Low
- SUP 2: 112-29 76.4% retracement of the Dec 30 - Jan 19 bull run
- SUP 3: 112-18+ Low Jan 5
- SUP 4: 112-10+ Trendline support drawn from the Oct 21 low
A sharp pullback in Treasury futures Friday and a continuation lower Monday, highlights a bearish cycle and signals scope for an extension of the current bear cycle. The contract has breached 114-05+, the Jan 30 low and a short-term bear trigger. Note that price has also breached the 50-day EMA. This opens 112-29 next - a Fibonacci retracement. Initial firm resistance is seen at 114-18, the 20-day EMA.
US EURODOLLAR FUTURES CLOSE
- Mar 23 -0.005 at 94.945
- Jun 23 -0.040 at 94.665
- Sep 23 -0.030 at 94.670
- Dec 23 -0.035 at 94.975
- Red Pack (Mar 24-Dec 24) -0.045 to -0.025
- Green Pack (Mar 25-Dec 25) -0.025 to -0.02
- Blue Pack (Mar 26-Dec 26) -0.03 to -0.02
- Gold Pack (Mar 27-Dec 27) -0.04 to -0.035
SHORT TERM RATES
US DOLLAR LIBOR: Latest settlements:
- O/N -0.01128 to 4.55329% (+0.00058/wk)
- 1M -0.00758 to 4.58071% (+0.00885/wk)
- 3M +0.00186 to 4.84500% (+0.01086/wk)*/**
- 6M -0.00471 to 5.13500% (+0.07757/wk)
- 12M +0.03557 to 5.44000% (+0.18886/wk)
- * Record Low 0.11413% on 9/12/21; ** New 14Y high: 4.84500% on 2/7/23
- Daily Effective Fed Funds Rate: 4.58% volume: $99B
- Daily Overnight Bank Funding Rate: 4.57% volume: $278B
- Secured Overnight Financing Rate (SOFR): 4.55%, $1.209T
- Broad General Collateral Rate (BGCR): 4.52%, $473B
- Tri-Party General Collateral Rate (TGCR): 4.52%, $460B
- (rate, volume levels reflect prior session)
FED Reverse Repo Operation
NY Federal Reserve/MNI
NY Fed reverse repo usage recedes to $2,057.958B w/ 104 counterparties vs. prior session's $2,072.261B. Compares to Friday, Dec 30 record/year-end high of $2,553.716B (prior record high was $2,425.910B on Friday, September 30.
$11B Intel 7Pt Jumbo Launched
- Date $MM Issuer (Priced *, Launch #)
- 02/07 $11B Intel $1.5B 3Y +75, $1.75B 5Y +105, $1.25B 7Y +135, $2.25B 10Y +155, $1B 20Y +175, $2B 30Y +195, $1.25B 40Y +215
- 02/07 $5.5B PIF (sovereign wealth fund) $1.75B 7Y +115, $2B 12Y +145, $1.75B 30Y +185
- 02/07 $5B #EIB 10Y SOFR+48
- 02/07 $5B *World Bank (IBRD) 7Y SOFR +47
- 02/07 $3.5B #Export Development bank Canada (EDC) 5Y SOFR+39
- 02/07 $2B *CDP Financial 3Y +58
- 02/07 $1.75B *Swedish Export Bank (SEK) 7Y SOFR +46
- 02/07 $1.5B #Starbucks $1B 3Y +68, $500M 10Y +115
- 02/07 $1.2B #Vodafone $700M 30Y +195, $500M 40Y +210
- 02/07 $1B #Comcast WNG 10Y +100
- Chatter for new supply in near future:
- 02/08 $Benchmark IDB Invest 5Y SOFR+59
- 02/-- $Benchmark OPT Bank (Hungary)
FOREX: Greenback Marginally Lower Following Powell Remarks, JPY Leads Gains
- Despite some volatile price action following Fed Chair Powell’s remarks on Tuesday, the USD index sits just moderately lower on Tuesday approaching the APAC crossover. With Powell once again leaning into the disinflation process narrative, global equity indices are advancing into the close, providing a less optimistic backdrop for the USD.
- Greenback weakness has been led by USDJPY where the majority of the downward price action was seen in the lead up to Chair Powell’s remarks. The reversal has been helped by the overall technical outlook remaining bearish and the pair holding the 50-day exponential moving average almost perfectly on Monday around 132.90.
- Tuesday’s selloff was then exacerbated by short-term positioning and the pair filling the gap from Sunday’s open between 131.60-131.20. Although some further weakness ensued on Powell, to print fresh lows at 130.48, those losses have been pared and USDJPY remains close to unchanged on the week.
- The Euro has underperformed, largely led by the move lower in EURJPY. However, EURUSD did extend to fresh four-week lows of 1.0669, coming within two pips of 1.0667, the 50-day EMA and a key support.
- AUDUSD (+0.89%) sits higher for the first session in four following the RBA rate decision, at which the bank raised rates by 25bps to 3.35%, and hinted that another 50bps of rate rises could be still to come in an effort to rein in inflation.
- There are no major economic data releases on Wednesday which places the focus on the speaker slate. Fed’s Williams, Cook, Barr, Bostic, Kashkari and Waller may make remarks.
Wednesday Economic Calendar
| Date | GMT/Local | Impact | Flag | Country | Event |
| 08/02/2023 | 0101/0101 | ** |  | UK | IHS Markit/REC Jobs Report |
| 08/02/2023 | 0700/0800 | ** |  | SE | Private Sector Production |
| 08/02/2023 | 0900/1000 | * |  | IT | Retail Sales |
| 08/02/2023 | 0900/1000 |  | EU | ECB Elderson Hosts Banking Supervision Press Conf on SREP | |
| 08/02/2023 | 1000/1000 | ** | | UK | Gilt Outright Auction Result |
| 08/02/2023 | 1200/0700 | ** |  | US | MBA Weekly Applications Index |
| 08/02/2023 | - | | EU | ECB Lagarde at European Council meeting | |
| 08/02/2023 | 1420/0920 | | US | New York Fed's John Williams | |
| 08/02/2023 | 1430/0930 | | US | Fed Governor Lisa Cook | |
| 08/02/2023 | 1500/1000 | ** | | US | Wholesale Trade |
| 08/02/2023 | 1500/1000 | | US | Atlanta Fed's Raphael Bostic | |
| 08/02/2023 | 1500/1000 | | US | Fed Vice Chair Michael Barr | |
| 08/02/2023 | 1500/1000 |  | NL | DNB President Klaas Knot speaks at MNI event | |
| 08/02/2023 | 1530/1030 | ** | | US | DOE Weekly Crude Oil Stocks |
| 08/02/2023 | 1700/1200 | *** | | US | USDA Crop Estimates - WASDE |
| 08/02/2023 | 1730/1230 | | US | Minneapolis Fed's Neel Kashkari | |
| 08/02/2023 | 1800/1300 | ** | | US | US Note 10 Year Treasury Auction Result |
| 08/02/2023 | 1830/1330 |  | CA | BOC minutes from last rate meeting | |
| 08/02/2023 | 1845/1345 | | US | Fed Governor Christopher Waller |
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