FED: Dot Plot: Higher Shift In Outer Years Notable
The shift in the dot distribution vs March is below.
- It was a predictably close call going into this meeting between 2 cuts (3.9%) and 1 (4.1%) being signalled by the Dots for end-2025. The new Dot Plot shows 9 participants saw 1 or zero cuts, while the remaining 10 eyeing 2 or 3 cuts won the day. However, 7 of 19 members now anticipate no rate cuts this year. We think that the 8 in the 2-cut median probably reflects the core of the Committee including Chair Powell (with Gov Waller probably even more dovish at 3 cuts), but this wasn't far from signalling a higher end-year rate.
- More surprising was the shift higher in outer years, though again this was a close call.
- 10 of 19 now see a cumulative 75bp or less of cuts between now and end-2026, versus just 6 who saw such little easing at the March meeting. That said, there's one member who sees even more cumulative cuts by end-2026 than they expected before, and the median was close to remaining steady at 3.4%.
- For end-2027, there is a clearer shift with 6 dots at 3.1% now appearing in the 3.4% row. 11 of 19 members now see rates at 3.4% or higher by end-2027, versus 8 prior. This median is usually just a little above the longer-run dot, and perhaps this upward shift is reflective of the economic projections' medians showing that the 2% inflation target won't be hit by end-2027.
- On that note, none of the longer-run dot projections were changed vs March's meeting, a modest surprise given some had seen the median itself shifting up at this meeting (it remains at 3.0%).
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US TSYS/SUPPLY: 3M Bill Auction Goes Smoothly, "X-Date" Bills Still Discounted
Monday's $76B 3-month bill auction turned out to be uneventful.Some had eyed it as a potential warning sign ahead of an "x-date" window in mid-August, after a poor auction a week earlier, but the auction results didn't bear this out.
- The high yield of 4.285% was 1.5bp below May 12's sale, and bid-cover was the highest in 4 auctions at 2.76x. Indirects rose to 59.7% from 48.7% prior (last week's saw one of the lowest % in the last couple of years), with primary dealer takeup dropping to a fairly typical 35.8% (46.6% last week was the highest of 2025).
- On the other hand, potentially of note, the low rate was the highest of the year at 4.18%, up 3bp.
- There remains a very modest bump higher in Aug/early Sept bill yields vs the rest of the curve (about 5-6bp - the high bid yield is 4.374%) indicative of a slight risk premium against x-date risks.
- Per Tsy Sec Bessent earlier this month: "there is a reasonable probability that the federal government's cash and extraordinary measures will be
exhausted in August while Congress is scheduled to be in recess." - As we noted last Friday, The "extraordinary measures" plus cash available to Treasury to stave off a debt default were around $644B as of late last week.
SNB: Schlegel Sounds Pessimistic On Economic Outlook In Latest Comments
SNB Chairman Schlegel appears overall rather pessimistic on the economic outlook in Switzerland in today's speech at the University of Lucerne. The Swiss franc was little changed as he spoke. Some key highlights as quoted by Bloomberg:
- "SNB tolerates negative inflation rate in short term" (Schlegel mentioned in the last SNB press conference that the inflation rate can temporarily move into negative territory for individual months.)
- "Inflation outlook is very uncertain".
- "Swiss 2025 growth will be lower than expected". (The latest SNB Swiss growth forecast for 2025 was 1.0-1.5%. Q1 Q/Q (sports-adjusted) growth was already 0.7%)
- Schlegel added: "Tariff situation very challenging for some firms [...] Uncertainty is toxic for growth"
- "Can't rule out use of negative rates again if needed"
- "Franc is bought by domestic and foreign investors"
- "Too much gold on balance sheet not an advantage"
- "There is currently no alternative to US treasuries"
EURGBP TECHS: Trading At Its Recent Lows
- RES 4: 0.8768 High Nov 20 ‘23
- RES 3: 0.8624/0.8738 High Apr 21/ High Apr 11 and the bull trigger
- RES 2: 0.8541/8557 High May 2 / High Apr 28
- RES 1: 0.8459 50-day EMA
- PRICE: 0.8418 @ 16:38 BST May 19
- SUP 1: 0.8394 Low May 16
- SUP 2: 0.8359 1.236 proj of the Apr 11 - 16 - 21 price swing
- SUP 3: 0.8316 Low Mar 28 and a key support
- SUP 4: 0.8277 1.618 proj of the Apr 11 - 16 - 21 price swing
A bearish theme is EURGBP remains in play - for now. The cross has recently cleared 0.8459, the 50-day EMA, signalling scope for a continuation lower near-term. Friday’s fresh cycle low strengthens the bearish theme. The 0.8400 handle has been pierced, a continuation lower would open 0.8359, a Fibonacci projection. Key near-term resistance to watch is 0.8541, the May 2 high. A break of this hurdle is required to signal a potential reversal.
