FED: Gov Barr: Have To Weigh Inflation Vs Jobs Risks At October Meeting
Oct-09 18:05
Gov Barr's key comments in a post-speech Q&A Thursday:
- Asked whether he worries if cutting rates will exacerbate inflation pressures, Fed Gov Barr says "Do I worry that cutting rates might exacerbate the problem with inflation? Yes, that's one of the things that I'm worried about. I think we need to be it's one of the reasons I think we need to move cautiously...if we didn't have any concerns at all about the labor market, we wouldn't need to cut interest rates in that environment."
- He adds: "We have to decide at our next meeting: do we move down another step which might help on the labor market side, but might present additional risks on the inflation side? That's what makes the choice very difficult. "
- On the restrictiveness of policy, he tends to agree with most of his colleagues that it's "modestly" restrictive: "I think right now, our policy is probably modestly restrictive, even though, if i were to take my long run estimate, i would say it was quite restrictive. but given the shocks we're experiencing in the economy right now, I'd say it's modestly restrictive, and I think you can see that in lots of areas, including labor demand which we've been talking about."
- However, given the cautious tone of his speech, he apparently doesn't see the need to remove that that restrictiveness quickly.
- Likewise, on the Fed's balance sheet, Barr doesn't show any urgency in slowing/halting QT, with various administrative tools able to handle deviations in the policy rate as reserves are drawn down: "I think thus far, balance sheet runoff has gone quite smoothly. It kind of operates in the background. One of the things that's really important as we get feel our way towards ample and get to that right level of reserves in the system, is that we have really good ceiling tools in place, so that if we see significant upward pressure on our rate because we've gotten too close, those ceiling tools can kick in and keep our policy rate where we want it to be. So the two policy tools, ceiling tools that we have are the discount window, which are broadly use in the banking system, and the standing repo facility... And those two ceiling tools, if they're operating effectively, are ways of ensuring that even if we get a little too close, that rates stay effective, and then we can adjust back to where a little above ample needs to be, so that we can maintain that.. My own view is that over the longer run, it would be really helpful to have the standing repo facility also centrally clear repo as a way of making sure it moves with the market."
- On services inflation pressures: "ariff effects are directly related to services inflation. So for example, if you look at auto repair, a big component of services inflation and Auto Repair are the goods inputs to the services you need to buy the parts, and that goes into services inflation, even though the goods going up in prices. So there's some areas where there's a clear link. I don't think we're seeing kind of a generalized spill over into services, but it's hard to hard to know for sure. "
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EURGBP TECHS: Holding On To The Bulk Of Its Recent Gains
Sep-09 18:00
- RES 4: 0.8769 High Jul 28 and the bull trigger
- RES 3: 0.8744 High Aug 7
- RES 2: 0.8728 76.4% retracement of the Jul 28 - Aug 14 bear leg
- RES 1: 0.8713 High Sep 2
- PRICE: 0.8660 @ 17:31 BST Sep 9
- SUP 1: 0.8635/8597 50-day EMA / Low Aug 14 and the bear trigger
- SUP 2: 0.8562 50.0% retracement May 29 - Jul 28 upleg
- SUP 3: 0.8540 Low Jun 30
- SUP 4: 0.8514 61.8% retracement May 29 - Jul 28 upleg
EURGBP continues to trade closer to its recent highs despite the fade into the Tuesday close. The cross has recently cleared resistance at 0.8674, the Aug 25 and 29 high. The break signals a stronger reversal and suggests scope for climb towards 0.8744, the Aug 7 high. Key resistance and the bull trigger is at 0.8769, the Jul 28 high. Key support to watch lies at 0.8597, the Aug 14 low. Clearance of this level would reinstate the recent bearish threat.
PIPELINE: Corporate Bond Update: $1.5B Raymond James 2Pt Launched
Sep-09 17:56
- Date $MM Issuer (Priced *, Launch #)
- 09/09 $2.5B #Repsol E&P Capital $500M 3Y +130, $1B 5Y +160, $1Y 10Y +190
- 09/09 $2.05B *NCL Corp $1.025B each: 5.25NC2 5.875%, 8NC3 6.25%
- 09/09 $2B #Turkiye Govt International Bond 10Y 7%
- 09/09 $1.5B #Raymond James $650M 10Y +85, $850M 30Y +95
- 09/09 $1B *Korea Development Bank 5Y SOFR+64
- 09/09 $750M #Huntington Bancshares PerpNC5 6.25%
- 09/09 $650M #NBN Co 5Y +60
- 09/09 $600M UWM Holdings 5.5NC2.5
- 09/09 $500M #Met Tower 5Y +65
- 09/09 $Benchmark Stellantis 3Y +145, 3Y SOFR+169, 5Y +180
- 09/09 $Benchmark DTE Energy 3Y +57, 10Y +102
- Expected Wednesday:
- 09/10 $3B KFW 3Y SOFR+33a
- 09/10 $1B Federal Home Loan 2Y +4
- 09/09 $Benchmark IDA (International Development Association) 7Y SOFR+57a
BONDS: EGBs-GILTS CASH CLOSE: Rally Takes A Breather Ahead Of ECB
Sep-09 17:52
European yields rose modestly Tuesday, with some of the bull flattening seen over the past week taking a breather.
- Gilt and Bund yields gapped higher on the open, but largely traded within recent ranges in the morning session. Gilts outperformed Bunds early, in part helped by a strong 20Y UK auction.
- With European data (including French industrial production and UK BRC shop sales) not proving impactful, attention was on US benchmark payroll revisions.
- The latter delivered a bigger downward revision to payrolls through Q1 2025, triggering a rally for global core FI upon release (10Y Gilt yields briefly hit a fresh post-Aug 14th low).
- But the move slowly reversed as the revision was within a broad range of analyst forecasts and attention swiftly turned to US inflation data coming Wednesday and Thursday.
- Both the German and UK curves bear steepened modestly, with periphery/EGB spreads mixed (OATs outperformed).
- The week's European focus is Thursday's ECB decision. MNI's preview went out today (here): there appears to be little to no appetite for a September rate cut amongst ECB Governing Council members but we suspect there still an underlying easing bias.
Closing Yields / 10-Yr EGB Spreads To Germany
- Germany: The 2-Yr yield is up 1.5bps at 1.941%, 5-Yr is up 1.6bps at 2.225%, 10-Yr is up 1.7bps at 2.659%, and 30-Yr is up 1.6bps at 3.28%.
- UK: The 2-Yr yield is up 1.1bps at 3.914%, 5-Yr is up 1.4bps at 4.037%, 10-Yr is up 1.8bps at 4.623%, and 30-Yr is up 1.8bps at 5.477%.
- Italian BTP spread down 0.8bps at 82.1bps / French OAT down 2.6bps at 81.0bps
