STIR: US Rates Mostly Fade Latest Climb In Oil Futures
Dec-22 11:30
- Fed Funds implied rates are broadly unchanged since Friday’s close, with little material spillover from WTI futures climbing a further 1.8% or Cleveland Fed’s Hammack admittedly sticking to the hawkish script over the weekend.
- It holds a small hawkish move after Williams on Friday, with low odds of a fourth consecutive cut in January (5bp) and with a next cut still leaning to but not fully priced for April (cumulative 22bp).
- Cumulative cuts from 3.64% effective: 5bp Jan, 15bp Mar, 22bp Apr, 35bp Jun (new Fed chair), 51.5bp Sep and 59.5bp Dec.
- SOFR futures are 0-1.5 ticks lower looking to end-2027, with the terminal implied yield of 3.10% (Z6) remaining with ranges over the past month.
- Re-upping several rounds of flow worth highlighting from early London trade: SFRZ6 ~6.5K given at 96.900, SFRH7/H9 ~3.3K given at 40.5 and SFRH6 96.56/96.43/96.37/96.18 broken put condor 4K given at 5, desks point to closing out of an existing position.
- Cleveland Fed’s Hammack (’26 voter, hawk) in WSJ remarks over the weekend said a pause in rates is her base case for now, waiting to see “clearer evidence that either inflation is coming back down to target or the employment side is weakening more materially”. She doesn’t put much weight on any single economic report and said that last week’s inflation data includes “noise” due to the lack of sampling during the shutdown. “It’s just one number and I want to take some time. Fortunately, we have a lot of time before our next meeting to see how the broader picture comes in.”
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RATINGS: Moody's Upgrades Italy To Baa2 From Baa3, Still A Notch Below Others
Nov-21 21:46
The Moody's upgrade to Italy's credit rating announced late Friday was the first from the agency since 2002 but shouldn't be considered a major surprise. Among the 3 major ratings agencies, Moody's had the lowest rating on Italy - by two notches (Fitch and S&P both BBB+).
- So this upgrade to Baa2 from Baa3 represents something of a closing of that gap rather than a major breakthrough for Italy.
- From the release:
- "The rating upgrade reflects a consistent track-record of political and policy stability which enhances the effectiveness of economic and fiscal reforms and investment implemented under the National Recovery and Resilience Plan (NRRP). It also points to prospects of further policy actions supporting growth and fiscal consolidation beyond the plan's deadline in August 2026. As a result, we expect that Italy's high government debt burden will gradually decline from 2027 onwards."
FED: Heading Into Its Final Weeks, QT Pace Remains At $20B/Month (2/2)
Nov-21 21:03
On the asset side of the Fed balance sheet, we saw a $25B drop in assets, of which just $2B could be attributed to QT in one of its final weeks (ends Dec 1).
- Instead it was a $6B drop in dealer repo operations vs a week earlier, and $17B in "other" areas that aren't related directly to monetary policy and typically don't have any significant impact on the size of the balance sheet (such changes are largely due to items such as bank premises, accrued interest, and other accounts receivable.)
- Discount window takeup edged up $0.3B to $6.1B but remains relatively low.
- QT has totaled just under $21B over the last month, around the expected pace, though as noted this will flatline in December with a pickup in net bills as MBS proceeds are rolled over into T-bills.
LOOK AHEAD: US Week Ahead: Retail Sales, PPI & Claims Headline Thanksgiving Week
Nov-21 21:01
A Thanksgiving-condensed week sees data highlights from delayed retail sales and PPI reports for September on Tuesday (Nov 25) before a Wednesday release for weekly jobless claims (Nov 26). Aside, the Fed’s Beige Book should also offer another important update on Wednesday for latest liaison reporting, with no Fedspeak currently scheduled around the holiday and the FOMC media blackout due to start on Saturday, Nov 29.
- As we regularly comment in this weekly publication, Redbook and Chicago Fed CARTS indicators point to solid nominal growth in retail sales, something broadly reflected in analyst consensus for the release.
- PPI inflation will offer a useful albeit not overly timely update on input cost pressures.
- Jobless claims will be watched particularly closely, both for latest initial claims for signs of layoffs and a notable update for continuing claims. The latter covers the payrolls reference period for November and will be an important reference point for FOMC members trying to get a sense of latest unemployment rate clues with the next payrolls reports coming after the Dec 9-10 FOMC decision (going into it with this week’s 0.12bp rise to 4.44% back in September).
