Tag Archives: macro

I am on vacation, and then on a business trip that will interrupt the commentary until the weekly note on April 30. The May monthly analysis will be published the following week after the FOMC meeting and April employment report. I wanted to weigh in on a few key market issues before leaving. New Divergence: The continued robust US jobs growth (276k average in Q1 24 and 251k average in 2023) and above-trend growth allow the Federal Reserve to remain focused on...

The March US employment data were stronger than expected and lend support to the re-acceleration hypothesis and an extension of US exceptionalism. In Q1 24, nonfarm payrolls rose by an average of 276k. It was the strongest quarter in a year and compares with an average monthly job gain of about 251k in 2023. The unemployment rate slipped as the household survey jumped around 500k after falling in the previous two months. The workweek increased, and the participation...

The macroeconomic and geopolitical developments have not changed substantially over the past month. The resilience of the US economy allows the Federal Reserve to put more emphasis on achieving price stability. While the market favors a June cut (66% vs. 80% at the end of February), it has not been fully discounted for over a month. The biggest event in March may have been the well-telegraphed exit from negative interest rate policy and Yield Curve Control by the...

There has been a dramatic adjustment to US rates. The two-year yield was near 4.40% before the US employment report on March 8 and it reached near 4.73% before the weekend. The 25 bp surge is the largest weekly increase since last May. For the first time in four months, the Fed funds futures strip is no longer has at least three rate cuts discounted. The interest rate adjustment underpinned the dollar, which rose against all the G10 currencies last week.  Like the...

When everything was said and done last week, the market did not change its mind. There was still a better than 90% chance that the Federal Reserve delivers its first rate cut in June. Fed Chair Powell told Congress that the central bank was not far from the level of confidence needed to cut rates. The market understands "not far" to mean three months. The US reported a 275k gain in February's nonfarm payrolls. Taking the past two month's downward revisions into...

Rarely are officials able to achieve the proverbial economic soft-landing when higher interest rates help cool price pressures without triggering a significant rise in unemployment or a contraction. Yet, without declaring victory, the Federal Reserve's confidence that this will be achieved has risen. Still, its increased confidence is unlikely to lead to a rate cut this month. To appreciate where things stand begins with recognizing that what has characterized the...

The US dollar and interest rates appear to be at an inflection point. Much of the past several weeks have been about correcting the overshoot that took place in  Q4 23, when the derivatives markets were pricing in nearly seven quarter-point rate cuts by the Federal Reserve this year. US two- and 10-year interest rates set new three-month highs last week. With the help of economic data and comments by Fed officials, the market, as it did a few times last year, has...

The US January CPI and PPI came in stronger than expected and this extended the recovery in US interest rates. In turn that helped underpin the dollar. We do not think the data itself changes the Fed’s stance. At least seven Fed officials speaking in the coming days will test this hypothesis. There are still several key reports before the data dependent FOMC meets again in about four weeks. Owing to the different weights and methodology, the PCE deflator, which the...

The markets are still correcting from the overshoot on rates and the dollar that took place in late 2023. The first Fed rate cut has been pushed out of March and odds of a May move have been pared to the lowest since last November. The extent of this year's cuts has been chopped to about 4.5 quarter-point move (~112 bp) from more than six a month ago. The market has reduced the extent of ECB cuts to about 114 bp (from 160 bp at the end of January and 190 in late...

Given the world's turmoil, including the escalation, and broadening of the conflict in the Middle East and China's continued aerial harassment of Taiwan ahead of the election, the capital and commodity markets have remained firm. February WTI fell about 1.7% last week and March Brent slipped around 0.65%. Shipping costs are rising as the Rea Sea is avoided and supply chain disruptions are threatened. Still the MSCI index of developed equity market rose by nearly...