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Free AccessMNI BRIEF: Talks On France Budget Promising - EU Gentiloni
MNI US Employment Insight, Oct'24: 50bp Cut Odds Evaporate
US Credit Mkt Wk Ahd: FOMC, State Of Union, Payroll Data Ahead
CHICAGO (MNI) - Get ready for a busy week ahead with several items, though
well anticipated, having the potential to move markets sharply. See the complete
week ahead calendar at the end of this report.
The final Federal Open Market Committee monetary policy announcement under
Janet Yellen's watch is Wednesday (two-day meeting starts Tuesday). Markets will
be caught off guard on anything but a steady rate announcement, though some
dealers suspect a gradual change in the committee's verbiage.
The March 20-21 FOMC meeting, under Jerome Powell's tutelage as of February
3, is still widely considered to be the first rate hike of 2018, MNI's PINCH
model pricing in over 95% probability of a hike while the June 12-13 FOMC
probability is near 60%.
After his return from the global eco-fin conference in Davos, U.S.
President Trump's 2018 State of the Union Address is scheduled for Tuesday,
January 30 at 2100ET. ABC news reporting the president "will offer
bipartisanship, unifying tone" in his address, though several democrats have
already announced their boycott of the annual event.
Several data risk events through the week include PCE, ECI and ISM data,
December ADP private payroll data on Wednesday with the January non-farm payroll
read (+180k jobs) on Friday.
Rate markets will also watching the U.S. Treasury's refunding announcement
Wednesday morning at 0830ET, dealers anticipating gradual increases in auction
sizes that start in the short end but can pick up out the curve.
JP Morgan strategists "expect Treasury to announce $25bn 3-year notes,
$24bn 10-year notes, and $16bn 30-year bonds for auction the following week,
each $1bn larger in size than the November refunding."
Nomura strategists estimate a total of $66 billion for the latest
announcement, "comprised of new 3yr ($26bn), 10yr ($24bn) and 30yr bonds
($16bn)."
According to Nomura's economist projections, they see "a budget deficit of
around $750bn in FY2018 and $1trn in FY2019. The fact that deficits continue to
increase at this stage of the cycle and the Fed's B/S UST roll-offs will
continue to increase before they hit their maximum cap later in 2018 could lead
to much higher issuance needs in the months / quarters ahead."
On the near-term horizon, Nomura cautions that with the "budgetary process
and temporary spending bill complicating matters, Treasury must still contend
with the lingering debt ceiling risk and a potential early-March drop-dead
date."
Markets will hopefully hear specifics on President Trump's infrastructure
plan as he addresses the nation Tuesday evening.
Deutsche Bank notes the import of the address "particularly in light of the
ongoing government funding talks and recent comments by the Administration
regarding trade"...while anxiety over the "recent government shutdown concluded
last Monday with a three-week continuing resolution (CR) that keeps the
government funded until February 8" could benefit from a more conciliatory
speech.
"Last week's deal to re-open the federal government was largely predicated
on a promise by Senate Majority Leader McConnell to bring an immigration bill to
the Senate floor before the CR expires. Given the President's veto power, his
address could complicate the ongoing Congressional negotiations for a spending
bill."
On Wednesday's FOMC announcement, DB expects the "post-meeting statement to
largely reinforce current market pricing of three rate hikes this year with the
next increase all but certain to come in March."
From a practical standpoint, JP Morgan strategists said "with markets
already well priced for a March hike, debt ceiling dynamics indicating risks to
lower yields over the near term, and position technicals short, we recommend
maintaining a neutral stance on duration at current levels."
Focus on upcoming data DB said "assuming no meaningful miss on ADP, we
expect a healthy gain in headline nonfarm payrolls (+210k vs. +148k) in January,
which should keep the unemployment rate steady at 4.1%."
Meanwhile, last Friday's "Q4 2017 GDP release provided a preview of the
core PCE deflator (+0.2% forecast vs. +0.1% previous) - the Fed's preferred
inflation metric, FB noted. "The December value, inferred from the quarterly
data, should raise the year-on-year growth rate about six basis points to
1.54%".
Citigroup strategists said "NFP is now second tier to AHE..." as "higher
than expected wage growth globally remains one of the main upside risks in
2018."
"Minimum wage changes have continued," Citi notes "along with some
unexpected employee, one-time bonuses on the Trump tax plan. There was also a
bit of a wage story in the last Fed Beige Book, along with bits of anecdotal
evidence in various sentiment surveys that eventually, wage growth will be
delivered."
BNP Paribas thinks Friday's January payrolls "come in hot", projecting a
"strong 230,000 jobs added in January," citing "seasonal adjustment. January
tends to be a big month of firing - stripping away seasonal adjustment, an
average of 2.3mn jobs have been eliminated over the past six years (as a
comparison, the second-largest month of firings has been September, with an
average of 420,000)."
Meanwhile, the Fed continues to gradually reduce its $4.5 trillion balance
sheet ($4.2 trillion in U.S. Treasuries and Agency MBS.) 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 29 Dec personal income (0.3% prev, 0.3% forecast) 0830ET
- Jan 29 Dec current dollar PCE (0.6%, 0.4%) 0830ET
- Jan 29 Dec total PCE price index (0.2%, 0.2%) 0830ET
- Jan 29 Dec core PCE price index (0.1%, --) 0830ET
- Jan 29 Jan Dallas Fed manufacturing index (29.7, --) 1030ET
- Jan 29 $48B Tsy 3M and $42B 6M bill auctions 1130ET
- Jan 30 FOMC policy meeting, in Washington
- Jan 30 27-Jan Redbook retail sales m/m (0.0%, --) 0855ET
- Jan 30 Nov Case-Shiller Home Price Index (0.7, --) 0900ET
- Jan 30 Q4 housing vacancies rate (1.6%, --) 1000ET
- Jan 30 Jan Conference Board confidence (122.1, 124.3) 1000ET
- Jan 30 Jan Dallas Fed services index (18.1, --) 1030ET
- Jan 30 $20B Tsy 3M 52W bill auction 1130ET
- Jan 30 Dec farm prices (4.2%, --) 1500ET
- Jan 31 26-Jan MBA Mortgage Applications (4.5%, --) 0700ET
- Jan 31 Dec ADP private payrolls (250k, --) 0815ET
- Jan 31 Q4 ECI (0.7%, 0.6) 0830ET
- Jan 31 Tsy refunding annc, 0830ET
- Jan 31 Jan ISM-Milwaukee Mfg Index (65.57, 63.9) 0900ET
- Jan 31 Jan MNI Chicago PMI (67.8, --) 0945ET
- Jan 31 Dec NAR pending home sales index (109.5, --) 1000ET
- Jan 31 Jan help-wanted online ratio (1.28, --) 1000ET
- Jan 31 26-Jan crude oil stocks ex. SPR w/w (-1.07m bbl, --) 1030ET
- Jan 31 FOMC policy announcement, in Washington, 1400ET
- Feb 01 Jan NA-made light vehicle sales SAAR (13.6m, 13.0m)
- Feb 01 Jan challenger layoff plans (-3.6%, --) 0730ET
- Feb 01 27-Jan jobless claims (233k, 238K) 0830ET
- Feb 01 Q4 non-farm productivity (p) (3.0%, 0.1%) 0830ET
- Feb 01 Q4 unit labor costs (p) (-0.2%, +1.0%) 0830ET
- Feb 01 Jan Markit Mfg Index (final) (55.5, --) 0945ET
- Feb 01 28-Jan Bloomberg comfort index 0945ET
- Feb 01 Jan ISM Manufacturing Index (59.7, 58.7) 1000ET
- Feb 01 Dec construction spending (0.8%, 0.5%) 1000ET
- Feb 01 26-Jan natural gas stocks w/w 1030ET
- Feb 01 31-Jan Fed weekly securities holdings 1630ET
- Feb 02 Jan nonfarm payrolls (148k, 180k) 0830ET
- Feb 02 Jan private payrolls (146k, 175k) 0830ET
- Feb 02 Jan unemployment rate (4.1%, 4.0%) 0830ET
- Feb 02 Jan average hourly earnings (0.3%, 0.2%)
- Feb 02 Jan average workweek, all workers (34.5hrs, 34.5) 0830ET
- Feb 02 Jan ISM-NY current conditions (56.3, --) 0945ET
- Feb 02 Feb Michigan sentiment index (f) (94.4, 94.8) 1000ET
- Feb 02 Dec factory new orders (1.3%, 1.0%) 1000ET
- Feb 02 Dec factory orders ex transport (0.8%, --) 1000ET
- Feb 02 Q1 St. Louis Fed Real GDP Nowcast 1100ET
- Feb 02 Q1 NY Fed GDP Nowcast 1115ET
- Feb 02 San Fran Fed President Williams 2030ET
--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$]
To read the full story
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Why MNI
MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.