STIR: Fed Rate Path Pares Weekly Decline, Waller On The Docket
Feb-06 11:36
- Fed Funds implied rates are mostly 1-2bp higher for 2025 meetings as they extend yesterday’s late increase to more than reverse the decline seen on the softer ISM Services report. It pares the interweek decline with tomorrow’s nonfarm payrolls report in view.
- Cumulative cuts from 4.33% effective: 4bp Mar, 10bp May, 20bp Jun, 26bp Jul and 45bp Dec.
- Yesterday’s Fedspeak saw Gov. Bowman (permanent voter) have more impact on swap spreads (we’ll touch more on this in due course) rather than monetary policy considerations.
- VC Jefferson said the Fed can be patient on assessing tariff effects, echoing rhetoric from earlier in the week.
- Today’s Fedspeak comes later in the session with Gov. Waller at 143E0ET and Logan at 1710ET.
- 1430ET – Waller (permanent voter) on future of payments. The Q&A-only event seems unlikely to touch on the economic outlook in detail but he’ll still be watched after dovish commentary on Jan 16 had a notable market reaction (three or four cuts are possible in 2025 if data cooperates vs the median dot showing two cuts).
- 1710ET – Logan (’26) voter on future challenges for mon pol, with prepared text whilst Q&A is tbd. She hasn’t spoken publicly since mid-November but is still seen towards the hawkish end of the spectrum and is a contender for one of the dots that pencilled in no cut back in December vs the realized 25bp cut.
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EUROPEAN INFLATION: Swiss CPI Dragged Down By Transport Services, Overall Soft
Jan-07 11:36
Looking at the details of the Swiss December inflation data shows a solid slowdown in the services CPI contribution (-0.126pp vs November) which, however, was almost exclusively driven by transport services; core inflation almost rounded down to 0.6%, making up for an overall soft release.
- Transport service inflation declined sharply to -1.4% Y/Y (3.3% prior), its lowest value since June 2021. Its contribution to headline decreased by 0.120pp vs November. Higher car fuel inflation could not outweigh that in the overall transport category.
- This means that the mid-term trend of lower services ex-rents contributions to headline remains intact - see the dark blue bars in the chart below.
- Further details see table.
- Also note that the consensus estimate was upwardly skewed (0.6% median but a number of analysts expecting a higher headline figure), so even though headline came in in line with consensus, it remained below the mean estimate (0.63% vs 0.65% mean est).
- The Swiss Franc saw some weakness on the back of the release, most notable in EURCHF, which is approaching the Nov 04 high of 0.9447 in a move further underpinned by strength for the single currency today. A continuation of the EURCHF rally would place the technical focus on a cluster of September highs around the 0.95 handle.
BONDS: Core global FI Remains Under Pressure, Gilts Lead Sell Off
Jan-07 11:34
Swelling € & $ IG supply continues to weigh on bonds, alongside an uptick in crude oil futures.
- Elsewhere, a bid in European equities may be applying further pressure.
- Global core FI curves bear/twist steepen on the day.
- Gilts continue to lead the sell off, with 30-Year yields trading to fresh multi-decade highs and 10s threatening a clean break of their December high (technicals for 10s and 30s detailed in earlier posts).
- Gilts also falling afoul of fiscal/issuance risks, adding to broader global FI pressure, with the move higher in yields continuing to erode already narrow fiscal headroom in the UK.
- Solid reception of the latest 30-Year gilt auction did little to counter the sell off.
- Bears fail to retest yesterday’s lows in TY & Bund futures as of yet.
EQUITIES: EU Bank Risk Reversal
Jan-07 11:33
SX7E (17th Jan) 143/151RR, bought the call for 0.25 in 10k.
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