FED: MNI Fed Preview-Dec 2024: Greater Caution, Flatter Rate Path
Dec-13 20:12
Our preview of the December 17-18 FOMC meeting has been published (PDF here):
- The latest unemployment and inflation data have kept the FOMC on track to cut the federal funds rate by 25bp (to 4.25-4.50%) on Dec 18, but macro and political developments have heightened uncertainty over its the next moves.
- With the unemployment rate likely to undershoot September’s median projection along with core PCE inflation and GDP growth overshooting, the FOMC will undoubtedly signal a more cautious approach to easing.
- This will be communicated most clearly in the updated Dot Plot, which is set to show 75bp of cuts in 2025 – 25bp less than the 100bp in the last edition - with 2026, 2027, and the Longer-Run dot in line for increases.
- The hawkish risk at this meeting comes not just from a potential signalling of just 50bp of cuts in 2025, but negative market reaction to a higher terminal rate forecast, with a funds rate that settles above 3%.
- The new forecasts are not likely to explicitly incorporate anticipated policy shifts under the incoming Trump administration, but as with the corresponding post-election meeting in 2016 we expect the FOMC to discuss the macro and rates implications, with more participants seeing upside risks to inflation and rates.
- This could result in a hawkish flavor to the communications tone. While Chair Powell is unlikely to rule out a cut at the next meeting in January, reiterating that the Fed is moving meeting-by meeting while remaining confident inflation remains on a path to 2%, expect him to emphasize increasing uncertainty over the path ahead.
- Another area to watch includes a likely technical adjustment to an administered rate (ON RRP), though discussion on halting QT will probably not escalate until at least early 2025.
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US INFLATION: Regional Fed Metrics Show Incremental Disinflationary Progress
Nov-13 20:10
Regional Fed inflation metrics showed continued disinflationary progress for the most part following the October CPI release:
- Atlanta Fed Sticky CPI ("a weighted basket of items that change price relatively slowly") fell to 3.6% on an annualized basis (3.9% prior), with flexible prices ("a weighted basket of items that change price relatively frequently") negative for the 5th consecutive month (-1.4%).The 12-month sticky measure fell to the the lowest in October since December 2021, continuing its recent downside progress.
- The Cleveland Fed's median measures showed less no real progress though: Y/Y median came in at 4.09% (4.08% prior), with 16% trimmed mean at 3.20% (3.17% prior). The M/M median of 0.30% was very close to the core CPI reading of 0.28%, but marked a deceleration from a 0.34% median in September.
- Though these metrics continue to trend downward overall, they remain above levels seen pre-pandemic when inflation was at/below the 2% target.
US TSYS: Late SOFR/Treasury Options: Turning Bullish
Nov-13 20:01
Decent two-way SOFR and Treasury options traded with a bullish tone after this morning's in-line CPI inflation data rekindled dovish policy expectations. Underlying futures reversed course in the short end, curves twisting steeper (2s10s +8.451 at 16.770 vs. 5.586 low) as projected rate cuts into early 2025 gained vs. early Wednesday levels (*) : Dec'24 cumulative -20.6bp (-15.5bp), Jan'25 -29.1bp (-23.0bp), Mar'25 -43.5bp (-35.1bp), May'25 -50.4bp (-41.3bp).
- SOFR Options:
- -12,000 SFRZ4 95.62/95.68 call spds 2.25 ref 95.605
- Block 5,880 0QZ4 95.68/95.87 put spds 3.0
- -5,000 SFRX4/SFRZ4 95.68 put spds, 1.25 ref 95.605
- +8,000 SFRJ5 95.31/95.43/95.68/95.81 put condor, 3.5 ref 95.995
- Block/screen, 6,500 SFRF5 95.62/95.75 put spds, 3.75 ref 95.84
- -12,000 SFRF5 95.37/95.43/95.50 put flys, 0.75
- Block, 12,000 SFRZ4 95.37/95.43/95.50 put flys, 0.75 ref 95.60
- Block/screen, -20,000 SFRM5 95.50/95.62/95.87 put flys, 7.5 ref 95.89
- Block/screen, 20,000 SFRH5 95.62/95.75 put spds 4.5 over 96.25/96.43 call spds ref 95.755 to -.75
- 8,600 2QH5 94.62/95.38/96.00 broken put flys ref 96.155
- 20,000 SFRM5 95.37 puts, 3.25
- 4,000 0QZ4 96.25/96.50 vs. 95.62 puts
- -20,000 SFRM5 95.75 puts, 20.0-20.5 ref 95.90 to -.895
- 2,500 SFRX4 95.62/SFRZ4 95.75 call spds ref 95.555
- 2,000 0QZ4 96.25/2QZ4 96.37 call spds
- 5,000 SFRZ4 95.50 puts, 4.25 ref 95.55
- 1,000 3QM5 94.75/95.50 3x2 put spds ref 96.17
- +3,600 SFRM5 96.75/97.00 call spds, 2.5 ref 95.95/0.05%
- 2,000 SFRX4 95.62/95.68 2x1 put spds, 2.25
- Treasury Options:
- +28,000 FVF5 107.25/109 call spds, 23.5 ref 106-25.5
- 10,000 USZ4 121 calls, 3 ref 117-06
- -16,500 TYZ4 108 puts, 4 ref 109-24 to -27, total volume >33,900
- +15,700 TYZ4 110 calls, 16-15 ref 109-16.5 to -15
- -20,000 TYG5 106.5 puts, 19 ref 109-20
- 9,900 Wednesday wkly 10Y 109.25 puts, 8-9 ref 109-15 to -14.5 (expire today)
- 2,000 Wednesday wkly 10Y 109/109.25 put spds, 5 ref 109-16.5
- +19,200 TYG5 107.5/108.5 put spds, 20 ref 109-17
- +15,000 TYF5 112.5 calls, 11 ref 109-17
- 2,000 TYZ4 110.75 calls ref 109-15.5
- 2,500 FVZ4 107/107.25/107.5/107.75 call condors ref 106-14
- +2,000 TYZ4 110/110.75/111.5 call flys, 7 ref 109-15.5/0.11%
EURJPY TECHS: Trend Needle Points North
Nov-13 20:00
- RES 4: 169.20 High Jul 24
- RES 3: 168.01 High Jul 26
- RES 2: 167.40 61.8% retracement of the Nov 11 - Aug 5 bear leg
- RES 1: 165.43/166.69 High Nov 8 / High Oct 31 and the bull trigger
- PRICE: 164.07 @ 16:41 GMT Nov 13
- SUP 1: 163.41/21 50-day EMA / Low Nov 8
- SUP 2: 161.85/161.01 Low Oct 17 / Low Oct 4
- SUP 3: 158.11 Low Sep 30
- SUP 4: 157.05/155.15 Low Sep 18 / 16
A bullish theme in EURJPY remains intact and the latest pullback is considered corrective. The 50-day EMA lies at 163.41. It has been pierced. A clear break of it would signal scope for a deeper retracement and expose 161.85, the Oct 17 low. Moving average studies are in a bull-mode set-up and recent gains suggest scope for a climb towards 167.40, a Fibonacci retracement point.
