DJIA -0.4% / S&P -0.9% / CCMP -1.7% / US10YR +5.5pts 3.85 / CRUDE +1.5% $72.92 / GOLD -1.1% $2,484 / VIX +7.9% $17.55: Fed minutes suggests a gradual approach to rates cuts. Media highlights several policy makers requiring more data before supporting action. Powell to update view on economy / outlook for monetary policy at Jackson Hole tonight. BoJ Governor to address parliament for first time since mkt’s recent whipsaw.
There was mixed data from Europe overnight. In the US initial jobless claims were on the screws at 232k while continuing claims were slightly lower than expectations at 1,863k. The prior week’s continuing claims was revised down to 1,859k from 1,864k initial print. USTs were stable following the weekly jobless data but saw better selling after PMI, with services at 55.2 vs 54.0 and composite at 54.1 vs 53.2 expected. The $8bln 30 yr tips reopening had a -.5 bp tail, despite strong non-dealer take down. USTs yields pushed higher following these auctions results. 2 yr yields end the day trading at the high, yielding 4.02%, about 12 bps higher from yesterday’s post FOMC lows of 3.90%. Powell’s Jackson Hole speech at 10am. Fedspeak comes in the form of Goolsbee and Bostic. Data is limited to new home sales and Aug Kansas City Fed Manufacturing.
June 24th August 23rd
2yr 4.73% 3.98%
5yr 4.27% 3.70%
10yr 4.25% 3.84%
30yr 4.39% 4.12%
Curve
2s5s -46 -28
2s10s -48 -14
2s30s -34 -14
5s10s -2 +14
10s30s +14 +28
S&P 500 5464 5570
Dow 39150 40712
Nasdaq 17689 17619
EUR 1.07 1.11
JPY 159 146
GBP 1.26 1.31
CNY 7.26 7.15
As we approached the summer break predictions equities drifting higher, the Japanese currency pushing back below 150 and the UST curve continuing to normalize. But the moves in absolute yields have exceeded our expectations. We also didn’t foresee the Carry Trade Commotion, a move that proved the old bond market adage “ the road to hell is paved with carry”.
Now the time of reckoning nears. What will be Powell’s version of current affairs? How will this impact the September FOMC. Will they be open to 25bps or 50bps? A lot to consider over the weekend.
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