US TSYS: Leaning Bear Flatter As Fed Muses On QT End
Feb-19 20:47
The Treasury curve leaned bear flatter Wednesday.
- Futures started on the back foot in a continuation of the bearish price action following last Friday's post-retail sales peak, with developments in Europe (hawkish ECB member commentary, mixed UK inflation data) weighing.
- But TYs would reclaim ground largely in two moves: first around the equity cash open, through no particular trigger (data including housing starts were soft but overall mixed), and second after the release of the January FOMC minutes which suggested that some participants eyed a precautionary end to QT earlier than markets are anticipating.
- Conversely, the 20Y Bond auction tailed by 1bp, a return to weak form after a strong prior sale in January - the Treasury market reaction was negative but brief (half a tick lower in TYs).
- Even Fed cut expectations ticking higher (about 3bp for 2025), the belly of the curve modestly underperformed. Latest cash levels: The 2-Yr yield is down 3.6bps at 4.2697%, 5-Yr is down 3.9bps at 4.363%, 10-Yr is down 2.2bps at 4.5288%, and 30-Yr is down 0.6bps at 4.7597%. In futures, Mar 10-Yr futures (TY) up 4.5/32 at 108-31.5 (L: 108-21.5 / H: 109-00)
- Looking ahead, Fed's Jefferson speaks after the cash close (subject: household balance sheets).
- Thursday's schedule includes the Philly Fed manufacturing survey alongside weekly jobless claims, while the highlight of the Fedspeak schedule is St Louis's Musalem.
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CANADA: GS See Significant Uncertainty Over Tax Holiday Impact On CPI
Jan-20 20:46
- Goldman Sachs highlight four key elements to watch in the December CPI report:
- i) “our forecast assumes a 34bp drag on headline inflation from the start of the GST/HST tax holiday in mid-December, but we acknowledge significant uncertainty around how the cumulative 70bp tax holiday drag will be distributed across the December and January inflation releases.”
- ii) “we expect a spike in energy inflation, but soft food inflation due to the sales tax holiday on several food items such as restaurant meals.”
- iii) “we forecast an uptick in homeowners’ replacement cost inflation—reflecting higher new house prices—and a slight moderation in rent prices, as asking prices declined for the third consecutive month.”
- iv) “we expect mortgage interest cost inflation will continue to moderate following rate cuts.”
AUDUSD TECHS: Corrective Bounce
Jan-20 20:30
- RES 4: 0.6429 High Dec 12
- RES 3: 0.6384 High Dec 13
- RES 2: 0.6335 50-day EMA
- RES 1: 0.6302 High Jan 6
- PRICE: 0.6261 @ 16:49 GMT Jan 20
- SUP 1: 0.6131 Low Jan 13
- SUP 3: 0.6100 Round number support
- SUP 3: 0.6045 1.500 proj of the Sep 30 - Nov 6 - 7 price swing
- SUP 4: 0.5994 1.618proj of the Sep 30 - Nov 6 - 7 price swing
A bearish trend condition in AUDUSD remains intact and the latest recovery appears corrective. The pair has recently breached 0.6179, Dec 31 low, maintaining the price sequence of lower lows and lower highs. Moving average studies are in a bear-mode position too. Scope is seen for an extension towards 0.6100. Resistance at 0.6229, the 20-day EMA, has been pierced. The next resistance to watch is 0.6335, the 50-day EMA.
CANADA: Desjardins: BoC's Core Measures Will Be Shielded From Tax Adjustments
Jan-20 20:03
- Desjardins warn that the December CPI report will “need to be carefully parsed as the GST holiday will drive at most 12% of the basket materially lower.”
- They see headline CPI falling -0.3% M/M for an unchanged 1.9% Y/Y. “Were it not for the tax holiday, base effects would probably have pushed headline inflation up to 2.2% from 1.9%.”
- “The GST holiday aside, some components of inflation could rebound in December due to particularly aggressive Black Friday discounts that held back price growth in November.”
- “The Bank of Canada’s preferred measures of core inflation rely on pre‐tax data and so will be shielded from any adjustments to taxes.”
- “Still, the trimmed-mean measure now includes mortgage interest costs, which is biasing the calculation higher. As such, we will be looking at the Bank of Canada’s core measures excluding shelter to get a better gauge of underlying inflationary pressures.”
