FED: Dallas's Logan: Rates Could Be On Hold For "Quite Some Time"
Feb-06 22:20
Dallas Fed Pres Logan (hawk, non-2025 voter) says rates could be on hold "for quite some time" (speech text here), sounding like her base case is for no or only very limited cuts this year barring an unexpected deterioration in the economy/labor market. As such it's typically hawkish for Logan, who late last year suggested that - even before the December rate cut - rates may be at the high end of the range of neutral estimates ("neutral fed funds rate of 2.74 to 4.60 percent").
- "I think the possible policy strategies for the FOMC in 2025 boil down to two key alternatives. In some scenarios, it will soon be appropriate to resume reducing the federal funds target range. In other scenarios, we’ll need to hold rates at least at the current level for quite some time."
- She notes that even if inflation converges to the 2% target in the coming months, that may not necessitate rate cuts. "Suppose, for example, that as the first quarter unfolds, monthly inflation figures come in at a 2 percent annualized rate, labor market indicators hold right where they were all fall, and consumer spending and business investment also stay strong. I’d find it hard to say monetary policy was meaningfully restrictive in that scenario. One aspect of the global higher-rate environment is that the neutral interest rate appears to have moved up—though it’s uncertain exactly how much. On-target inflation alongside two quarters of stability in the labor market and demand would strongly suggest that we’re already pretty close to the neutral rate, without much near-term room for further cuts. On the other hand, if the labor market or demand cools further, that could be evidence it’s time to ease."
- Re the neutral rate: "One aspect of the global higher-rate environment is that the neutral interest rate appears to have moved up—though it’s uncertain exactly how much," noting that the December FOMC SEP showed participants’ estimates of the long-run real fed funds rate ranged from 0.4 to 1.9 percent, but that's up from Dec 2019's range of 0 to 1.3 percent.
- On policy uncertainty: "To me, the monetary policy implications of these uncertainties generally come down to whether sustainably restoring price stability requires keeping rates at least at the current level or moving lower."
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BONDS: NZGBS: Cheaper With US Tsys After Strong Data
Jan-07 22:04
In local morning trade, NZGBs are 4-6bps cheaper after a data-induced heavy session for US tsys.
- US tsys drifted sideways for most of the session after establishing cheaps after the morning's data: The JOLTS report saw surprisingly elevated job openings in November, but the quits rate reversed a surprise increase from October. Job openings were 8090k (cons 7740k) in November after an upward revised 7,839k (initial 7,744k) in October.
- Headline ISM strengthened to 54.1, a little higher than the 53.5 expected (52.1 prior), with New Orders (54.2, 53.7 prior) and Employment (51.4, 51.5 prior) exactly matching survey expectations. But Prices Paid soared to 64.4 (57.5 expected, 58.2 prior), jumping by the most since January to the highest level in 22 months.
- The local calendar today will see the Dec ANZ commodity price series. The Nov rise was 2.9% m/m. Also note Australian monthly CPI is out.
- NZ house prices may show a modest recovery this year after failing to respond to falling interest rates in the final months of 2024, according to CoreLogic. (per BBG)
- Swap rates are 4-6bps higher.
- RBNZ dated OIS pricing is little changed. 51bps of easing is priced for February, with a cumulative 126bps by November 2025.
OIL: Crude Continues Trending Higher, Near-Term Supply Risks
Jan-07 22:00
Oil prices rose around a percent on Tuesday on increased demand for heating fuel from cold weather in the US and Europe, and possible tightening of the oil market from frozen US crude facilities. Also China’s eastern ports receiving imports from Iran were asked not to allow US-sanctioned vessels to dock. The USD index rose 0.1%.
- WTI rose 1.2% to $74.45/bbl to be 3.8% higher this month. It fell to $73.11 and then trended up to a high of $74.53, close to resistance at $74.99. The bull trigger is at $76.41. The relative strength index continues to flash overbought though and initial support is at $71.79.
- Brent has broken above $77 after rising 1.0% to $77.04/bbl. After a low of $75.91 it rallied to reach $77.28, approaching resistance at $77.50, January 6 high. Key resistance is at $79.50. Initial support is at $74.72, January 2 low.
- Saudi, Oman and Dubai have all increased prices of shipments to Asia as the region shifts away from Iranian and Russian crude to comply with US sanctions especially on shadow shipping. Bloomberg observed that data showed Russian output in December was lower than its OPEC quota.
- Bloomberg reported that there was a US crude stock drawdown of 4.0mn barrels, more than expected, according to people familiar with the API data. They fell 3.1mn barrels at Cushing last week. Product inventories continued to rise though with gasoline up 7.3mn and distillate +3.2mn. The official EIA data is published later today.
JPY: USD/JPY Supported On Dips, US-JP 10yr Differential Higher On better US Data
Jan-07 21:56
USD/JPY tracks near 158.05/10 in early Wednesday dealings. Dips sub 157.40 were supported late in Tuesday Asia Pac trade and we rose to 158.40/45 post stronger US data, but didn't make fresh highs compared to earlier in the session. Yen lost a little over 0.25%, outperforming the EU bloc of currencies including the CHF (down over 0.50%), amid a broader USD recovery.
- The technical backdrop for USD/JPY remains a positive one, with bulls still in the drivers seat and moving average studies constructive. The 20-day EMA is back closer to 156.00 on the downside, while focus will rest on a consolidation above 158.00 and then revisit to July 12 highs at 159.45.
- US-JP yield differentials received support from the better US data outcomes, led by the JOLTs beat and surge in the ISM Services prices paid sub-index. The back end of the US Tsy curve led the move higher, +5-6bps firmer, with the 10yr yield at levels last seen in late April/early May 2024.
- Equity weakness in US markets likely helped temper USD/JPY upside, although yen didn't outperform the likes of AUD and NZD in aggregate for Tuesday's session. EUR/JPY sits off recent highs, last near 163.45 (Tuesday highs were at 164.55).
- The local data calendar just has Dec consumer confidence figures on tap today. Tomorrow we have Nov labor cash earnings figures.
- Note a decent option expiry for NY cut later on Wednesday for $1.5bn at 157.50 strike.
