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The dollar index surged yesterday morning to nearly 102 level on the revised Fed hike expectation, which was bolstered by another Fed official (Bainard) saying a hike might be appropriate “ so”on.Ironically, the Dow rose over 21000 for the first time ever, when equities “should” fall on rising rates.
The 10-year yield jumped on an opening gap yesterday to close at 2.463% and is higher again this morning at 2.465%, This is more than just “Yes, March.” It has a foundation in the PCE price index for Jan, up 1.9% y/y. The core PCE remained at 1.7%.
Even the CME puts the probability of the March hike at 66.4% from 35.4% the day before. With another two weeks to go to the March FOMC, that number can rise—as long as it doesn’t fall back below 50%.
The 10-year yield index closed at 2.463% from 2.358% the day before and is quoted at 2.465%. Now we can call it a vote of confidence in the “Yes, March” idea. The recent high was 2.502% from Feb 15 and that’s what has to be surpassed. The last high was Dec 15, 2016 at 2.639% and the recent low was 2.307% on Jan 17.
In other markets, Brent oil surged yesterday but is falling back today, in part on the US inventory report showing a build of 1.5 million barrels last week to a record 520.2 million barrels. Russian output was unchanged in Feb at 11.11 million bpd, while OPEC claims on-going cuts and a compliance rate of 94% in Feb. A Saxo Bank analyst told Reuters "There is a very stale smell hanging over the market. I still see the risk of $50 a barrel before $60 on Brent, but have to acknowledge that we have so far seen very limited selling appetite."
The 10-year yield jumped on an opening gap yesterday to close at 2.463% and is higher again this morning at 2.465%, This is more than just “Yes, March.” It has a foundation in the PCE price index for Jan, up 1.9% y/y. The core PCE remained at 1.7%.
Even the CME puts the probability of the March hike at 66.4% from 35.4% the day before. With another two weeks to go to the March FOMC, that number can rise—as long as it doesn’t fall back below 50%.
The 10-year yield index closed at 2.463% from 2.358% the day before and is quoted at 2.465%. Now we can call it a vote of confidence in the “Yes, March” idea. The recent high was 2.502% from Feb 15 and that’s what has to be surpassed. The last high was Dec 15, 2016 at 2.639% and the recent low was 2.307% on Jan 17.
- Here’s a shakes to avoid stroke
: income rose 0.4% but spending rose 0.2%, and the WSJ reports that adjusted for inflation, household spending fell by 0.3% in January. That would make it the weakest reading since Sept 2009. Savings are not so hot, either, 5.5% in Jan from 5.4% in Dec but well under 6.2% in Jan a year ago. Note that the Fed has projected PCE inflation at 1.9% this year—and we are already there. The Fed revises the projection this month.
- Another bummer came in the form of the Atlanta GDPNow Q1 forecast falling to 1.8% from 2.5% on Feb 27. The Atlanta Fed didn’t like the shortfall in personal consumption expenditures, only 2.1% from 2.8%. We get the next update next Tuesday, on March 7.
- The other North American currencies had diverging fates. Traders saw the absence of Trumpian nasty moves against Mexico as a reason to buy the Mexican peso, which rose over 1% on the day. Besides, Trump may be open to some kind of path to legal resident status. But The Wall is still on the agenda and some may find it ironic that the best equity market performer in Mexico yesterday was Cemex.
- Separately, the Canadian dollar, already in free fall, fell some more on a dovish or at least cautious stance by the BoC, seeing “significant uncertainties” for the economy. Canada reports Q4 GDP today, expected at 2%. Reuters reports swaps show the probability of a BoC rate hike this year fell after the BoC statement, in contrast to the US version.
- The AUD continues to be terribly choppy on conflicting stories. This time it fell from 0.7686 around noon in the US session yesterday to 0.7607 around 6 am today, the shorts winning on a bad trade report outweighing a good building permit report. In trade, the Jan surplus was a lousy A$1.3 billion when A$3.8 billion was forecast. Meanwhile, building permits surged by 1.8%. While tracking the AUD is really hard these days, keep in mind that it has the highest notional and real rate of return and the AUD is the best performing major currency over the past six months.
- In the UK, the construction PMI was good, up to 52.5 from 52.2, but Parliament threw a monkey wrench into PM May’s Brexit plans, such as they are, causing more delay to the final announcement. The upper house requires protection of EU citizen’s rights before she can trigger Article 50, so back to the lower house it goes. Reuters reports the thinking is that delay is positive for sterling (maybe to 1.2800-1.3000) while her preferred “hard Brexit” is negative (perhaps to 1.1800).
- In the eurozone, Feb flash inflation rose to 2.0% y/y from 1.8%, as forecast and exceeding the ECB target, which is “near but below 2%.” Meanwhile, PPI for Jan is up 3.5% y/y from a revised 1.6% and more than 3.2% forecast. The Jan unemployment rate remains the same at 9.6%.
In other markets, Brent oil surged yesterday but is falling back today, in part on the US inventory report showing a build of 1.5 million barrels last week to a record 520.2 million barrels. Russian output was unchanged in Feb at 11.11 million bpd, while OPEC claims on-going cuts and a compliance rate of 94% in Feb. A Saxo Bank analyst told Reuters "There is a very stale smell hanging over the market. I still see the risk of $50 a barrel before $60 on Brent, but have to acknowledge that we have so far seen very limited selling appetite."
