Softened tone
December 1, 2022
–Powell emphasized that rate hikes would slow, but did NOT stress that the Fed would be keeping rates high for a long time. The market seems to have concluded that the commitment to “keep at it until the job is done” was watered down. Huge rally ensued with reds (2nd year) up 15.375 bps. Grns +13, blues +8.25, golds +5.375. New low in the lowest one-year calendar, SFRU3/U4 settled -140, down 4.5 on the day. SFRH3/H4 had an outside day range of -75 to -92.5 and settled -91.5 (9508.5/9600.0). The expectation of ease late next year into 2024 has strengthened. Data like the plunge in Chgo PMI to 37.2, lowest save the GFC and Covid, support the idea of forced easing ahead. SPX +3.1% and Nasdaq +4.4% as Powell’s softened tone, combined with relaxation of China’s covid policies, sparked panic buying on the month’s last day.
–At futures settle, 2y -9.3 bps to 4.378, 5y -8.8 to 3.832, 10y -4.7 to 3.699 and 30y +1.8 to 3.818.
–A lot of news today: yoy PCE prices expected 6.0 from 6.2 with Core 5.0 from 5.1. ISM Mfg expected 49.7; it hasn’t been sub-50 since May 2020. Job Claims expected 235k. In two weeks the FF target will move to 4.25-4.5%. Possible the Core PCE prices drop below 5% today? Powell said he wanted to see positive real rates across the curve. Getting close.
