US Credit Mkt Wk Ahd: Fed Speaker Flurry, Tsy Supply, CPI Fri

     CHICAGO (MNI) - The first full week of the new year ushers in a flurry of

data with focus on CPI Friday (+0.1% est vs. +0.4% prior), 3-, 10- and 30-yr

Treasury auctions (the latter two re-openings), and several Fed speakers

throughout the week before the media blackout period begins on Saturday, January

20.

     San Francisco Federal Reserve bank president John Williams and Boston

Federal Reserve bank president Eric Rosengren will touch on monetary policy and

the outlook for the economy at separate events Monday.

     At an annual meeting of the American Economic Association this Saturday,

Reuters quoted Fed president Williams that three hikes in 2018 "makes sense"

while the U.S. economy "will be 'in a very positive place two years from now: I

think we'll be at 2 percent inflation and around 4 percent unemployment'".

     Minnesota Federal Reserve bank president Neel Kashkari speaks Tuesday,

Chicago Federal Reserve bank president Charlie Evans and St. Louis Federal

Reserve bank president James Bullard at separate events on Wednesday.

     New York Federal Reserve bank president William Dudley will address the

2018 economic outlook on Thursday at a SIFMA event in New York Thursday while

Boston Federal Reserve bank president Eric Rosengren rounds out the week

touching on Money/Models/Innovation at an event in La Jolla, California Friday

evening.

     While chances of a rate hike at the January FOMC remain close to zero,

March probability has risen sharply over the past week, particularly after

Wednesday's December FOMC minutes supported the Fed's hiking campaign.

     Dealer opinions vary, but invariably see more rate hikes in 2018 than the

two that rate markets are currently pricing in.

     RBC's economists said their "long standing call that the Fed will raise

rates four times in 2018 remains firmly in place. We expect as the year

progresses the Fed will feel compelled by the constructive backdrop to fall

in-line with our thinking on this front."

     Skipping the January 30-31 FOMC policy announcement RBC said to expect the

Fed "to incorporate another hike into their current expectations (of just three

hikes) by the March meeting."

     Barclays believes the Fed "will be hesitant to offset fully the effects of

fiscal stimulus" following the late December tax reform passage. "Yet we believe

the committee remains overly sanguine on the path for unemployment."

     Barclays "forecast four 25bp rate hikes in 2018 and three additional 25bp

hikes in 2019" bringing the "target range for the federal funds rate to

3.0-3.25%."

     BNP Paribas posited the "employment situation on solid footing" with the

"Fed's focus remains on wage growth. We think this is likely to be the deciding

factor, along with inflation, on whether the Fed should increase the number of

rate hikes in 2018."

     BNP "currently expect three hikes in 2018 given a gradual pickup in wages

and inflation.

     Post minute selling in the short end remained strong since Wednesday, with

rate hike probability for the March 20-21 FOMC rising to the mid- to upper 70s.

     TD Securities strategists, however, believe "market pricing of nearly 80%

for March is a bit strong given the likely slow improvement in wage and price

inflation and the fact that uncertainty about the effects of the tax policy

changes will not be resolved by the March meeting."

     Turning to next week's data Deutsche Bank said "inflation releases headline

this week's data docket" after Friday's "slightly disappointing jobs report.

November's weak core CPI print was held down, in part, by a 1.3% fall in apparel

prices, the third largest drop in history and the largest since 1998. We expect

the change in apparel prices to largely unwind and, as such, core CPI (+0.2%

forecast vs. +0.1% previously) should come in relatively healthy as a result."

     DB added that "while a print in line with our expectation would see

year-over-year core CPI slip two basis points to 1.69%, the six-month annualized

change would rise about 17 basis points to 2.08% and the three month annualized

change would rise almost twice that to 2.19%, providing some evidence of core

inflation firming. With the price of most refined energy products falling in

December, headline CPI (+0.1% vs. +0.4%) should moderate correspondingly."

     On a more macro view of the Treasury curve RBC strategists sais a "whipsaw

coming...very early in 2018 the pension bid for the long end is likely to

continue to drive the curve flatter."

     RBC sais "tax changes do not create more pension buying, they simply

concentrate it into the early part of the year. Just as the pension bid begins

to fade, we think the focus on Treasury supply is likely to take over. At the

same time, foreign buying may slide from the long end to the belly, and

inflation fears are likely to pick up."

     Meanwhile, the Fed continues to gradually reduce its $4.5 trillion balance

sheet ($4.2 trillion in U.S. Treasuries and Agency MBS.) Below is the chart

schedule of monthly Fed reinvestment caps consistent with the FOMC Sept. 20

decision and June 2017 addendum:

MONTHLY CAPS ON SOMA SECURITIES REDUCTIONS

US TREASURIES.../AGENCY MBS/MONTH CAP 

- Oct-Dec 2017.. $6 billion./$4 billion 

- Jan-Mar 2018.. $12 billion/$8 billion 

- Apr-Jun 2018 $18 billion../$12 billion 

- Jul-Sep 2018 $24 billion../$16 billion 

- From Oct 2018** $30 billion $20 billion

- Calendar of next week's market events (data, Fed speakers): 

- Jan 08 Dec ETI (135.88, --) 1000ET

- Jan 08 Jan NY Fed expectations survey 1100ET

- Jan 08 Tsy $42.0B 26-Week Bill auction 1130ET

- Jan 08 Tsy $48.0B 13-Week Bill auciton 1130ET

- Jan 08 Atl Fed Bostic: Eco Outlk/MonPol Rotary Club Atlanta; Q/A 1240ET

- Jan 08 SF Fed Williams: Keep/Rethink Fed 2% Infltn Goal? Wash Q/A 1335ET

- Jan 08 Nov consumer credit ($20.5B, $18.3B) 1500ET

- Jan 08 Dec Treasury Allotments (final) 1500ET

- Jan 08 Boston Fed Rosengren last ASSA panel on Fed/BOC Phila

- Jan 09 Dec NFIB Small Business Index (107.5, --) 0600ET

- Jan 09 06-Jan Redbook retail sales m/m (0.3%, --) 0855ET

- Jan 09 Minn Fed Kashkari; Cargill HQ; Minn; Q/A 1000ET

- Jan 09 Jan IBD/TIPP Optimism Index (51.9, --) 1000ET

- Jan 09 Nov JOLTS job openings level (5.996M, --) 1000ET

- Jan 09 Nov JOLTS quits rate (2.2%, --) 1000ET

- Jan 09 US Tsy $24.0B 3-Year Note auction 1300ET

- Jan 10 05-Jan MBA Mortgage Applications (-2.8%, --) 0700ET

- Jan 10 Dec imports price index (0.5%, 0.3%) 0830ET

- Jan 10 Dec exports price index (0.7%, --) 0830ET

- Jan 10 Chic Fed Evans; Lake Forest Rotary, IL; Q/A 0900ET

- Jan 10 Nov wholesale inventories (-0.5%, --) 1000ET

- Jan 10 Nov wholesale sales (0.7%, --) 1000ET

- Jan 10 Jan Atlanta Fed inflation (2.1%, --) 1000ET

- Jan 10 05-Jan crude oil stocks ex. SPR w/w 1030ET

- Jan 10 Dec Kansas City Fed LMCI 1100ET

- Jan 10 US Tsy $20.0B 10Y Note reopen auction 1300ET

- Jan 10 StL Fed Bullard Eco Outlk/Mon. Pol; St.L, MO Q/A 1330ET

- Jan 11 06-Jan jobless claims (250K, 247K) 0830ET

- Jan 11 Dec Final Demand PPI (0.4%, 0.2%) 0830ET

- Jan 11 Dec PPI ex. food and energy (0.3%, 0.2%) 0830ET

- Jan 11 Dec PPI ex. food, energy, trade (0.4%, --) 0830ET

- Jan 11 07-Jan Bloomberg comfort index 0945ET

- Jan 11 05-Jan natural gas stocks w/w 1030ET

- Jan 11 US Tsy $12.0B 30Y bond reopen auction 1300ET

- Jan 11 Dec Treasury budget balance (-138.5B, -$54.0B) 1400ET

- Jan 11 NY Fed Pres. Dudley on '18 US Eco Outlk; SIFMA NY Q/A 1530ET

- Jan 11 10-Jan Fed wkly securities holdings USD 1630ET

- Jan 12 Dec US CPI (0.4%, 0.1%) 0830ET

- Jan 12 Dec US CPI Ex Food and Energy (0.1%, 0.2%) 0830ET

- Jan 12 Dec retail sales (0.8%, 0.5%) 0830ET

- Jan 12 Dec retail sales ex. motor vehicle (1.0%, 0.4%) 0830ET

- Jan 12 Dec retail sales ex. mtr veh, gas (0.8%, --) 0830ET

- Jan 12 Nov business inventories (-0.1%, +0.3%) 1000ET

- Jan 12 Q1 St. Louis Fed Real GDP Nowcast 1100ET

- Jan 12 Q1 NY Fed GDP Nowcast 1115ET

- Jan 12 Bstn Fed Rosengren: Money/Models/Innovation; La Jolla CA 1615ET

--MNI Chicago Bureau; tel: +1 312-431-0089; email: bill.sokolis@marketnews.com

--MNI Washington Bureau; tel: +1 202-371-2121; email: kevin.kastner@marketnews.com

[TOPICS: MTABLE,M$U$$$,M$$FI$,MN$FI$,MN$FX$]