The JPY is the strongest and the GBP is the weakest as the North American session begins. The US stocks are trading lower as implied by the futures. At stake today is the 9-day streaks in the Nasdaq and Dow. The S&P is up 8 of 9 days. The Dow made another record close yesterday. The S&P closed less than 1% from an all-time record close yesterday.
The fear of missing out (FOMO) has been a contributor to the flows. However, there has been some pushback recently by other Fed officials including Richmond Fed Pres. Barkin. In a WSJ article this morning from Fed watcher Nick Timiraos, he comments that Powell's recent comments suggested a shift in focus towards avoiding keeping rates high for too long, especially given this year’s decrease in inflation. This change in tone was unexpected
Yesterday, however, Richmond Fed President Tom Barkin, said he was seeking more evidence that inflation will stabilize at the Fed's 2% target before committing to rate cuts. Nevertheless, there are also some officials t who are more anxious to reduce rates next year to avoid the risk of unnecessarily high real interest rates as inflation declines.
In between is the "market" which is now anticipating rate cuts starting in March, and that is fueling sharply lower rates (stimulus too much) and higher stocks. Timiraos points out that some Fed officials have expressed discomfort with the market's aggressive expectations for a March rate cut. Today's declines may be reflective of some anxiety of going too far too fast. PS Yields are not getting the memo. They are down to start the US trading day.
The probability for a March cut is up to around 67% now with nearly a 100% chance in May. The Fed dot plot got things going last week when the Fed projected end-of-year 2024 target rate at 4.6%. The current rate is at 5.4%.
In the interest rate-sensitive housing market, the weekly mortgage data in the US today showed the 30-year mortgage rate moved down below 7% in the current week to 6.83%, but overall the data showed a slowing in the current week after sharp gains last week. The US Mortgage Refinance Index fell to 437.6 from the previous 445.8, and the US MBA Purchase Index also decreased slightly to 148.7 from 149.6. The overall US Mortgage Market Index dropped to 191.6 from 194.5. Additionally, there was a decrease of 1.5% in US MBA Mortgage Applications compared to the previous increase of 7.4%. The good news is the 30-year mortgage rate is at the lowest level since July 6 week when the rate was at 6.8%. The first release on January 4, 2023 was at 6.6% as a point of reference. The low for the year was 6.2% in late January and early February. The high reached 7.9% in the week of October 20.
In Europe, the UK inflation data was weaker than expectations which sent the GBP sharply lower and yields in the UK (and Europe) lower as well. .
- Consumer Price Index (CPI) year-on-year (y/y) fell to 3.9% vs 4.3 est and 4.6% last month
- Core CPI y/y, which excludes volatile items like food and energy: 5.1% down from 5.7% last month and lower than expectations of 5.6%
- Producer Price Index (PPI) Input month-on-month (m/m), measuring the change in the price of goods and raw materials purchased by manufacturers: -0.3% vs -0.6% est.
- PPI Output m/m, which reflects the change in the price of goods sold by manufacturers: -0.1% vs -0.1% est.
- Retail Price Index (RPI) y/y, which measures the change in the cost of a basket of retail goods and services came in at 5.3%lower than 5.6% estimate and 6.1% last month
So the good trends in UK inflation continue although rates are still well above the 2% target. Nevertheless, the improvement is being reflected in the GBP and in UK rates as well.
A snapshot of the markets to kickstart the North American session shows:
- Crude oil is trading up $1.05 or 1.43% at $75.01. Shipping issues from Iran militants in the Red Sea continue to be a positive to the market as shipping lanes are diverted.
- Spot gold is trading down $5.02 or -0.25% at 2035.08.
- Spot silver trading down -$0.03 or -0.10% at $24.01.
- Bitcoin is trading at $43,185..
In the US stock market, the major indices futures imply a lower opening after all three major indices rose yesterday. The Dow and the Nasdaq are up 9- straight days. The S&P is up 8 of 9 days and less than 1% from an all-time close. The Dow closed at record levels yesterday.
- Dow Industrial Average futures are implying a decline of -58 points. Yesterday, the index rose 251.90 points or 0.68% at 37557.93
- S&P index futures are implying a decline of -10.04 points. Yesterday, the index rose 27.79 points or 0.59% at 4768.36
- NASDAQ index futures are implying a decline of -45 points. Yesterday, the index rose 98.41 points or 0.66% at 15003.22.
In the European equity markets, the major indices are mostly lower (france's CAC is the exception).
- German DAX, -0.03%
- France's CAC, +0.09%
- UK's FTSE 100, 0.62%
- Spain's Ibex, -0.24%.
- Italy's FTSE MIB,-0.29% (10 minute delay).
In the Asia Pacific market, major indices closed lower:
- Japan's Nikkei index, rose 1.37%
- China's Shanghais composite index -1.03%
- Hong Kong's Hang Seng index, rose 0.66%
- Australia's S&P/ASX index, rose 0.65%
In the US debt market, yields are lower:
- US 2Y T-NOTE: 4.381%, -5.5 basis point. At this time Friday, the yield was at 4.371%.
- US 5Y T-NOTE: 3.85%, -4.7 basis points. At this time yesterday, the yield was at 3.874%.
- US 10Y T-NOTE: 3.82% -3.9 basis points. At this time Friday, the yield was at 3.899%%.
- US 30Y BOND: 4.003% -3.3 basis points. At this time Friday, the yield was at 4.022%%.
- 2 – 10-year spread is trading at -50.0 basis points.
- 2 – 30 year spread is trading at -38.1 basis points.
In the European debt market, benchmark 10-year yields are trading even lower.
