US OUTLOOK/OPINION: Fed Staff See Rent Inflation Above Norm Until Mid-2026
Oct-16 17:19
- Cleveland Fed economists write that “Our baseline forecast implies that CPI rent inflation will remain above its prepandemic norm of about 3.5 percent until mid-2026. Our alternative forecasts highlight both upside and downside risks to this forecast.”
- https://www.clevelandfed.org/publications/economic-commentary/2024/ec-202417-new-tenant-rent-passthrough-and-future-of-rent-inflation
- As we noted in the Inflation Insight after last week’s inflation releases, the weighted average of CPI OER and primary rents cooled from a particularly hot 0.47% M/M in August but at 0.32% M/M in September it’s still above the 0.27% M/M averaged pre-pandemic. There has only been one month this cycle consistent with this pre-pandemic pace, with exactly 0.27% in June. That puts more onus on other services or core goods inflation to moderate to below average rates.
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US: Brainard: Extending Tax Cuts Without Paying For Them Is Not Acceptable
Sep-16 17:12
Wires carrying comments from Director of the White House National Economic Council President, Lael Brainard, speaking on the economy at an event hosted by the Council on Foreign Relations.
- Per Reuters, Brainard said: "Inflationary expectations have proved to be much more strongly anchored today than they were in the 1970s."
- Brainard said the US economy could be "in a really good place" in 6-12 months if the right choices are made.
- Brainard said, "markets are projecting lower mortgage, car loan rates, which will help sustain recovery," [but] "need to have more bipartisan cooperation in congress on efforts such as creating more affordable housing."
- Brainard said on former President Donald Trump’s tax agenda: “Extending tax cuts without paying for them and boosting deficit by $5 trillion is not acceptable," adding that Americans strongly support 'fairer' tax system where ultra-wealthy and corporations pay more.
- The comments come as survey data suggests that voters are more likely to believe that Trump's agenda to cut taxes and raise tariffs is more likely to lower the deficit than Vice President Kamala Harris' more revenue-focused policy proposals.
- According to a new Reuters/Ipsos poll, voters credit Trump, "with being more likely to lower the $35 trillion national debt -- even though independent economic forecasters say his proposals would have the opposite effect."
- Reuters notes that 56% of registered voters said they were more likely to support a candidate backing a new 10% tariff, or tax, on all imports, as well as a 60% tariff on imports from China.
CANADA: USDCAD Comes Close To Resistance Amidst Broad Underperformance
Sep-16 17:08
- USDCAD sits close to 1.3600 having earlier touched 1.3608 but held within resistance at 1.3623 (Sep 11 high) and 1.3628 (50-day EMA).
- CAD sits bottom of the G10 FX pack today, the only major weaker against the USD in what’s impressive weakness considering a modest recovery in oil prices and equity futures lifting off lows.
- The move appears rates-led, with Can-US 2Y yield differentials 4bps lower on the day as they pull back further from recent elevated levels to -68.3bps currently.
- & The government’s attempts to stimulate the housing market by increasing the price cap on mortgage insurance and expanding the use of 30-year amortization has seemingly had little impact, along with heavy wage increases for Air Canada pilots to avert a strike yesterday.
- Latest CFTC data show that (for futures at least)CAD net shorts stopped being cut last week, at 27% of open interest as of Sep 10 in what had been a swift rebalancing from net shorts as large at 56% in mid-August.
- As above, CAD CPI lands tomorrow along with US retail sales on day one of the FOMC decision with increased perceived odds it could cut 50bps to start its easing cycle.
BONDS: EGBs-GILTS CASH CLOSE: Yields Edge Lower With Fed And BoE Eyed
Sep-16 16:56
Bund and Gilt yields fell Monday for the 9th day in 10, ahead of the Federal Reserve and BoE decisions later in the week.
- After starting the day on the front foot, after speculation of an outsized 50bp cut by the Fed this Wednesday rose further over the weekend, trade turned mixed in the European morning session.
- Various countervailing factors included a rebound in oil prices dampening core FI gains, with continued dovish Fed repricing and an equity pullback underpinning early. Yields resolved lower in the last couple of hours of European cash trade.
- ECB Chief Economist Lane elicited minimal market reaction with his commentary reinforcing a "meeting-by-meeting and data-dependent" approach to rate-setting.
- Bunds outperformed Gilts, with some light bull steepening through most of the UK and German curves.
- Periphery EGB spreads were mixed, with BTPs outperforming albeit gains were marginal.
- German September ZEW is the highlight Tuesday morning. Outside of the Fed, UK developments are at the fore this week, with CPI Wednesday and the BoE decision Thursday.
Closing Yields / 10-Yr Periphery EGB Spreads To Germany
- Germany: The 2-Yr yield is down 2.8bps at 2.183%, 5-Yr is down 2.5bps at 1.995%, 10-Yr is down 2.6bps at 2.122%, and 30-Yr is down 3.1bps at 2.4%.
- UK: The 2-Yr yield is down 1.2bps at 3.788%, 5-Yr is down 0.8bps at 3.614%, 10-Yr is down 0.9bps at 3.759%, and 30-Yr is down 0.9bps at 4.35%.
- Italian BTP spread down 0.6bps at 135.6bps / Spanish up 0.4bps at 79.5bps
