INDIA: INR Swaps Still Optimistic for a Cut in December
Oct-28 03:27
- With just over a month to go before the next RBI meeting, swaps and bond signals are still suggesting that the last meeting for the year will see a cut.
- The swaps market has 25bps of cuts over the next month and 29bps over the next two, whilst the MIPR function on Bloomberg has 29 cuts priced in over the next month.
- If correct, that looks likely to be the end of the cycle with very little priced in over the next 12 months. Our swaps model has -27bps of cuts over a 12 month time horizon, up from -32bps last week.
- The market pricing is somewhat at odds with the MPC who at their last meeting where rates were maintained at 5.50%, also maintained their neutral stance. The market is likely hinging on the fact that 2 of the 6 members voted for an accommodative stance.
- At the time of the last meeting on Oct 1, USDINR was hovering around the recent new low of 84.07 before a strong rally in recent days where the Rupee gained over 1% to sub 88 driven by RBI interventions, only to give some of that back to be trading at 88.24 today.
- The hopes for a rate cut are intertwined with that of the Rupee and any potential thawing of relations with the US with hopes for something coming from the OPEC summit though former foreign secretary Shyam Saran suggested any changes announced will "not be enough to restore the easy camaraderie between the two countries prior to this year" and that the damage to the relationship will have lasting impact.
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MACRO ANALYSIS: MNI US Macro Weekly: FedSpeak Reaffirms Range Of Cut Views (2/2)
Sep-26 20:16
While we heard the monetary policy views of 6 of 12 current FOMC voters this week, there were no real surprises. We go through all of the relevant FOMC communications in full in our Macro Weekly PDF.
- Chair Powell reiterated that policy is not on a preset course; Gov Bowman and Gov Miran reiterated their more-dovish-than-median views; Musalem and Schmid suggested only limited scope for easing; and Goolsbee eyed neutral rates 100-125bp lower but was “uneasy” with too much front-loading.
- Virtually of the week’s FOMC speakers noted labor market risks had begun to surface, but had varying concerns about inflation. To sum up:
2025 FOMC Voters:
- Powell Reiterates "There Is No Risk-Free Path", Policy Not On Preset Course (Sep 23)
- Gov Bowman: Concerned Will Need Faster And Bigger Cuts (Sep 23)
- St Louis's Musalem: Limited Room For Easing, Policy May Be Close To Neutral (Sep 22)
- Chicago's Goolsbee Eyes Neutral Rates 100-125bp Lower (Sep 23), Uneasy With Too Much Cut Frontloading (Sep 25)
- Gov Miran: Appropriate Rates In 2.00-2.50% "Ballpark" (Sep 22)
- KC Fed's Schmid: Slightly Restrictive Policy The "Right Place To Be" (Sep 24)
Non-2025 Voters:
- Atlanta's Bostic Pencils In No More Cuts this Year, But Watching Data (Sep 22), Longer-Run Dot Suggests Limited Impetus To Cut Further (Sep 23)
- SF's Daly: Likely Further Cuts Will Be Needed To Support Labor Market (Sep 24)
- Cleveland's Hammack: Policy Very Mildly Restrictive, Concerns On More Cuts (Sep 22)
- Dallas's Logan: Time To Move From Fed Funds Policy Rate To Tri-Party Repo (Sep 25)
- Barkin: Jobs Shakier, Inflation Less Troubling (Sep 26)
MACRO ANALYSIS: MNI US Macro Weekly: Too Solid For Comfort (1/2)
Sep-26 20:13
We've just published our US Macro Weekly - Download Full Report Here
- The US economy now appears to be on more solid footing than it seemed a week ago. Versus 45bp in Fed rate reductions through the remainder of 2025 as of last Friday, futures markets now price 40bp. Half of that retracement came Thursday at 0830ET, when Q2 GDP data, initial jobless claims, durable goods orders, and goods trade data all pointed to stronger ongoing GDP growth than previously anticipated.
- Q2 GDP growth was revised up significantly in the 3rd and final reading, to 3.84% Q/Q SAAR from 3.29% in the 2nd reading (consensus had expected this to be unchanged in the 3rd).
- And while that’s in the past, the latest monthly data saw the Atlanta Fed's GDPNow estimate for Q3 jump to 3.9% from 3.3% last week.
- Friday’s PCE data suggested solid consumption dynamics through August (and no nasty surprises in the core inflation data).
- As such, the week’s data almost unambiguously portrayed a better domestic demand story through – and beyond – a volatile first half of the year related to tariff policy shifts.
- That poses something of a quandary for a Fed that has shifted its sights to labor market risks. GDP is not employment, but a case for rate cuts at a time when inflation is still pushing 3% is tougher to make when the economy is growing at close to a 4% real pace and equities remain at or near all-time highs.
- October's cut is no longer such a sure thing as it seemed after the September meeting, with a 25bp ease now priced at 21bp (~84% implied prob), versus closer to 23bp (90+%) at the end of the prior week.
US TSY OPTIONS: BLOCK: Large Nov'25 5Y Risk Reversal, Covered
Sep-26 19:44
- +30,000 FVX5 108.5/109.5 call over risk reversals, 0.5 net vs.
- -18,000 FVZ5 108-31.75 at 1536:10ET
