The post-Non-Farm Payrolls rout continued on Monday with 2yr and 10yr yields jumping above 4.0% for the first time since August. The front-end continued to underperform and 2s10s inverted for the first time since going positive on Sept 11th when August CPI printed.
Fed's Kashkari spoke with a positive tone, saying there is a " lot of confidence" that inflation is returning to 2% goal and the labour market "still looks strong" Fed "wants to keep it" that way. He sees the neutral rate as "around 3%".
The neutral rate is seen as the rate at which monetary policy is neither contractionary nor expansionary, supporting both full employment and stable inflation. It doesn’t quite get a 3-letter acronym, having been given “r” in the 1990’s, and then “r*” in 2000’s. I am sure some bright spark will think of something.
Asia stocks fell this morning in a volatile session. China’s NDRC (National Development and Reform Commission) briefing was taken as disappointing. Apart from the potential to bring forward CNY200bn of investment initially planned for 2025, it outlined no clear plan to raise the budget. HK’s Hang Seng index (HIS) was down as much as 9% at one point, although onshore equities continued to perform well in the post-Golden Week holiday catch up. Asia credit spreads were 2-3bps wider on low volumes.
Old Lady Speak has been contradictory in the past few weeks, with BoE Governor Bailey suggesting the Bank could take a more aggressive approach to cutting rates, contrasting with hawkish comments from Mann and Greene, who argued that neutral rates might be higher than the market anticipated, with potential structural inflation issues. Pill played his shot somewhere in the middle.
2yr UK gilts have been stable, but longer gilts have fallen over the last few sessions following US NFP and ahead of October 30th. Chancellor Rachel Reeves will present 2024 Autumn Budget, coupled with the latest fiscal forecasts from the Office for Budget Responsibility (OBR) and the Debt Management Office’s gilt remit out to 2025. There have been calls to an increase of £65bn which has raised fears of a repeat of Chancellor Kwarteng's 2022 Budget turmoil.
Bloomberg -
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