Conditions are easing
December 2, 2022
–Yields continued to plummet in front of today’s payroll data. NFP expected 200k from 261k last, with a rate of 3.7%. YOY Avg Hourly Earnings expected 4.6% from 4.7% last. 10y yield -17 bps to 3.528% while green and blue ED/SFR were +16.375.
–PCE inflation numbers yesterday were about as expected, headline 6.0% and Core 5.0%. ISM Mfg came in at 49.0, with the Prices Paid component 43.0 from 46.6, hasn’t been lower since Covid in May 2020.
–The 2y yield plunged 12.6 bps to 4.252%. The Fed is expected to raise the FF target to 4.25-4.5% at the Dec 14 FOMC, so twos will likely be under FF by the end of the year. New lows in several of the near one-year calendars on ED and SOFR curves. The lowest remains Sept’23/Sept’24 at negative 146, down 6 on the day (SOFR 9535.5/9681.5). Dec’23 SOFR settled 9568.0 or 432 bps; the new EFFR after the FOMC will be 433 bps. Dec’24 SOFR settled 9699.0 (+16 on the day) or 301 bps.
–Powell’s message of holding rates at a restrictive level has been met with a disdainful shrug. Sure, FFF3/FFF4 is holding positive at +4.5 bps (9564.5/9560), but SFRZ2/Z2 is -20.0 (9548/9568) and SFRU3/SFRH4 six-month spread is -76.5 (9535.5/9612). Maybe things will hold together for the first half, but 2H looks dicey.
–Financial conditions are easing significantly. SPX is back above the 200 DMA and DXY closed below the 200 DMA.
