STIR: Holding Hawkish Shift In Fed Rates Ahead Of NFPs, Potential IEEPA Ruling
Jan-09 11:36
- Fed Funds implied rates are little changed overnight for near-term FOMC meetings but ~1bp higher for 2H26, extending yesterday’s modest hawkish shift on lower tier US data and much firmer oil prices.
- There are 5bps fewer cuts priced to end-2026 than prior to Wednesday’s ISM services beat.
- Today’s focus is clearly on the nonfarm payrolls report for December, which we characterize as likely being a cleaner but not entirely fogless release after last month’s particularly messy release (preview link). Potential for a Supreme Court ruling on IEEPA tariffs will also feature heavily.
- Cumulative cuts from 3.64% effective: 3bp Jan, 11bp Mar, 15.5bp Apr, 29bp Jun, 45.5bp Sep and 55.5bp Dec.
- SOFR futures are 2-2.5 ticks lower through 2H26 to end-2027 contracts in contrast to broadly flat European rates.
- The terminal implied yield has climbed to 3.15% (Z6) having last closed higher on Dec 23 after a boost from strong GDP growth at the time.
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UK FISCAL: Reeves non-committal regarding further non-work income tax increases
Dec-10 11:35
- Q: "You mentioned that a fair society is one where the wealthiest pay their fair share, and you discussed narrowing the gap between the tax on income from assets and income from work. Is there more left of that gap to be narrowed?"
- A: "If you go out to work, you pay National Insurance and you don't pay national insurance on other forms of income, but we have taken action in this budget to narrow the gap between those different forms of income." (Savings, rental, dividends)
- Regarding eVED (tax per mile on EVs and PHEVs): "We have no plans to increase that further, and wouldn't do so until the move to electric vehicles is well secured, but we've set it at a half rate for a reason."
STIR: Hawkish Fed Cut Priced, Highest Terminal Since June
Dec-10 11:32
- Fed Funds implied rates for meetings out to mid-2026 hold their hawkish tilt seen yesterday with surprisingly strong JOLTS job openings despite some softer details such as the quits rate in particular.
- Whilst a 25bp cut today is seen as extremely likely, the next fully priced cut doesn’t come until June under a new Fed Chair.
- The FT reported Trump will soon launch a final round of interviews for Fed Chair, pitting NEC’s Hassett against a trio of other candidates. He’s still a firm favorite in betting markets although the 70% on Polymarket currently shows as the lowest since Nov 30.
- Cumulative cuts from 3.89% effective: 23.5bp Dec, 29bp Jan, 34.5bp Mar, 39.5bp Apr and 51bp Jun.
- SOFR futures have modestly extended recent declines however, following European rates on the day, with losses of up to -0.025 in late 2027 contracts.
- It sees a terminal implied yield of 3.245% (Z6/H7) for ~25bp higher than lows after NY Fed Williams’ unusual guidance on a near-term cut. This last sustainably closed higher in June, leaving an already hawkish backdrop ahead of Powell’s press conference.
- MNI Fed Preview: https://media.marketnews.com/Fed_Prev_Dec2025_With_Analysts_4d5a318a2b.pdf
EURIBOR OPTIONS: Call Spread vs Put Spread
Dec-10 11:22
ERU6 98.00/98.50cs vs 97.87/97.62ps, bought the cs for -2 and -1.75 (receive) in 10k.
