STIR: Hawkish Fedspeak Supports Powell’s Warning On Dec Cut
Oct-31 17:43
- Today’s US front rates underperformance has been supported rather than solely driven by a selection on hawkish Fedspeak, although Dallas Fed’s Logan did see some reaction.
- SFRZ5 continues to lead losses at -0.025 whilst Z6-Z7 contracts are 0.01-0.015 higher. SFRZ5 volumes are elevated at 430k despite having tailed off in the past two hours, helped by a particularly active overnight, with the boost in part tied to delta hedging.
- The SOFR implied terminal yield of 3.095% is 1.5bp lower on the day but still elevated by recent month dovish standards after yesterday’s 3.11% was the highest close since August.
- Fed Funds implied rates rate 3bp higher across Dec-Apr meetings. Cumulative cuts from an assumed 3.87% effective: 14bp Dec, 22bp Jan, 31bp Mar, 37.5bp Apr and 52.5bp Jun.
- Hammack and Logan (’26 voter) both would have preferred not to cut this week, Schmid (’25 voter) explained his dissent by seeing an interest cut rate as not supporting the labor market amidst structural factors and Bostic (non-voter) supported the rate cut but was glad that Powell said a Dec cut was not a done deal.
- Hammack meanwhile added support to looking more broadly outside of Fed Funds, echoing Logan who in the past has promoted abandoning the Fed Funds rate as the policy rate with a preference for TGCR.
- We haven't heard from Fed Gov and CEA's Miran (permanent voter) after his dovish dissent, although he didn't provide one last month and instead gave a speech outlining his reasons in more detail. He's currently next set to speak on Nov 7, on stablecoins and monetary policy.
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SOFR OPTIONS: BLOCK: Dec'25 SOFR Conditional Curve Steepener
Oct-01 17:41
- 8,000 0QZ5 97.12/97.50 call spds vs. 3QZ5 96.87/97.25 call spd, 1.5 net - conditional curve steepener at 1334:07ET
US: FED Reverse Repo Operation - New Multi Year Low
Oct-01 17:30
With October underway - RRP usage falls to the lowest level since early April 2021 this afternoon: $10.179B with 15 counterparties, down from $49.071B Tuesday. Compares to the year's high usage of $460.731B on June 30.
GBPUSD TECHS: Approaching Pivot Resistance
Oct-01 17:30
- RES 4: 1.3789 High Jul 1 and key resistance
- RES 3: 1.3726 High Sep 17
- RES 2: 1.3661 High Sep 18
- RES 1: 1.3537 High Sep 23 and a pivot level
- PRICE: 1.3476 @ 16:27 BST Oct 1
- SUP 1: 1.3324 Low Sep 25 and the bear trigger
- SUP 2: 1.3282 Low Aug 6
- SUP 3: 1.3254 Low Aug 4
- SUP 4: 1.3144 38.2% retracement of the Jan 13 - Jul 1 bull cycle
The bear cycle in GBPUSD that started Sep 17, remains in play and the latest bounce - for now - appears corrective. Initial key resistance to watch is 1.3537, the Sep 23 high and a pivot level. A break of this hurdle would signal a potential reversal. Recent weakness resulted in a break of a trendline drawn from the Aug 1 low. Note too that 1.3333, the Sep 3 low and a key support, has been pierced, opening 1.3282 next, the Aug 6 low.
