FED: FOMC Minutes Eyed For Majority's View On "Transitory" Inflation (1/2)
The minutes to the May 6-7 FOMC meeting (out 1400ET) are considered more stale than usual given the major swing in sentiment and markets from the May 12 announcement of a China-US de-escalation in trade tensions.
- But uncertainty still lingers, not least regarding the Fed's reaction function when weighing up the risks of missing on the inflation vs employment side of the dual mandate.
- So perhaps the most intriguing aspect of the May discussion will be the degree to which participants saw tariff-generated inflation as transitory. Minneapolis Fed President Kashkari intriguingly noted this week that there was a "healthy debate" among the FOMC (possibly referring to May's meeting) on this subject: "At the Federal Reserve there is a healthy debate among policymakers about whether to “look through” the inflationary effects of the new tariffs. The look-through arguments view tariffs as creating a one-time change in the price level—a transitory inflation shock. This view prioritizes support for economic activity by lowering the policy rate while the economy transitions to its new equilibrium, at which point inflation will have returned to a 2 percent rate, albeit at a higher overall price level."
- For his part, Kashkari is among what seems to be a majority of members who are concerned about such inflation not being a transitory shock - he namechecks another in his speech ("As my colleague Beth Hammack, president of the Cleveland Fed, recently said, 'I would rather be slow and move in the right direction than move quickly in the wrong direction.')
- Leading the "transitory" vanguard is Gov Waller, who while still patient on taking action until H2, still envisages rate cuts this year: following the US-China detente on May 12, he said he is eyeing what he previously called a "good news" rate cut scenario with tariff inflation proving transitory, as opposed to a recessionary "bad news" scenario.
- For the upcoming minutes, we will take note of whether there is a number noted of participants who hewed toward Waller's view - or whether, as it seems more broadly, the majority of the Committee either is agnostic on the subject and doesn't want to pre-commit and/or is concerned about potential second-round effect should inflation expectations rise on tariff hikes.
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PIPELINE: Corporate Bond Update: $5B Alphabet 4Pt Launched
- Date $MM Issuer (Priced *, Launch #)
- 04/28 $5B #Alphabet $750M 5Y +32, $1.25B 10Y +47, $1.5B 30Y +62, $1.5B 40Y +70
- 04/28 $2B #Keurig Dr Pepper $500M each: 1.5Y SOFR+58, 3Y +68, 5Y +83, 10Y +98
- 04/28 $1.125B #Consumer Energy $500M +5Y +67, $625M 10Y +87
- 04/28 $1.1B #Northern States Power $600M 10Y +83, $500M 30Y +98
- 04/28 $1.1B #CBRE Services $600M 5Y +120, $500M 10Y +135
- 04/28 $700M *Posco Holdings $400M 5Y +137.5, $300M 10Y +157.5
- 04/28 $700M *Kookmin Bank $400M 3Y +77.5, $300M 5Y +82.5
- 04/28 $500M #Colgate Palmolive 5Y +38
- 04/28 $500M #DR Horton +5Y +103
- 04/28 $Benchmark Philip Morris 3Y +58, 3Y SOFR, 5Y +75, 10Y +93
- 04/28 $Benchmark Procter & Gamble 5Y +55a, 10Y +70a
- 04/28 $Benchmark General Dynamics 10Y +110a
- 04/28 $Benchmark World Bank 3Y +38a, 7Y +57a
FOREX: JPY, CHF and GBP Outperform as Greenback Loses Ground
The dollar has traded on the backfoot Monday amid a bull steepening move for treasuries and renewed modest pressure on major US equity benchmarks. This has particularly benefitted the Japanese yen and Swiss Franc, while GBP is also among the best performers in G10. A lack of concrete details surrounding the US administration’s progress on trade deals has allowed the broader dollar weakening trend to resume, although the plethora of data this week and month-end could provide obstacles to short-term sentiment.
For USDJPY, tests of the 144 handle have capped the topside for now, and moving average studies are in a bear-mode position highlighting a dominant downtrend. As such, USDJPY has been edging steadily lower across Monday, printing fresh session lows around 142.40 as we approach the APAC crossover. Key short-term technical parameters are seen at 144.47, the 20-day EMA, and 139.89, last week’s low.
USDCHF held the prior breakdown point well last week around 0.8333 and late weakness towards the 0.82 mark also appears to be confirming last week’s pullback as corrective.
GBPUSD is notably back above 1.34 and spot trades in close proximity to the 1.3424 bull trigger (as well as 1.3434, the Sept'24 high). This is a key medium-term area for cable and it will be eagerly monitored in coming sessions. Further strength would signal scope for a move towards 1.3500 Round number resistance and 1.3550, the Feb 24 ’22 high.
Price action has prompted EURGBP to trade through a major support area we flagged last week at 0.8520-31 - marking both the early April pullback low as well as the 50% retracement of the tariff-inspired upleg off 0.8323.
Downward pressure on equities has relatively hindered the progress for the likes of EUR, AUD and NZD. However, EURUSD is pushing back above 1.14 in late trade and AUDUSD is within 20 pips of a cluster of highs from last week around 0.6435, which represent four-month highs for the pair.
Eurozone inflation data kicks off Tuesday, and in the US, JOLTS and consumer confidence data are highlights.
STIR: Fed Terminal Yield Drops To Pre-Tariff Pause Levels
- Fund funds implied rates have continued to roll over.
- The Jun’25 implied rate has recently stepped lower after some stickiness today whilst the Dec’25 implied rate is now 4bp lower on the day after a 7bp intraday decline.
- Cumulative cuts from 4.33% effective: 2.5bp for next week, 18bp Jun, 39bp Jul, 59bp Sep and 93bp Dec.
- SOFR implied yields are currently as much as 10.5bp lower on the day (Z6), with the terminal yield of 3.03% (U6) now 37bp below pre Apr 2 tariff announcement levels.
- SFRU6 at 96.980 is through 96.970 on Apr 21 for highs since late Apr 8/early Apr 9, i.e. prior to the 90-day tariff pause announcement.
- There have been little new headlines behind the move although equity futures have more than reversed gains initially seen on some optimism of some trade deal traction with Bessent’s appearance with White House Secretary Leavitt tomorrow at 0830ET.
- There has also been some steepener flow and outright buying in the belly in Treasuries today.
- Tomorrow’s data see the advanced March trade report before JOLTS and the Conference Board consumer survey. We also see earnings from Coca Cola, GM, Kraftz, Paypal, Pfizer, Booking, Starbucks, UPS and Visa.
