Global Macro and Markets
- Global Markets: Global Markets: The market reaction to Friday’s non-farm payrolls release was a curious one. However, it is probably complicated by the reaction to the banking failures that have roiled the US tech sector and subsequent measures to calm things down. On Sunday, the Fed implemented an emergency lending facility (the Bank Term Funding Program or BTFP) to backstop banks and secure access to funds for depositors. The aim will be to try to limit contagion to other banks and prevent banks from conducting fire sales of Treasury bonds and other financial instruments to meet deposit outflows. After their sell-off on Friday, US stock market futures are looking positive currently, so it looks for now as if the Fed’s rapid action may have forestalled a larger problem. What it also does, is make a 50bp rate hike at the March FOMC meeting look fairly unlikely. The implied hike according to Fed funds futures at that meeting is 0.274%, meaning that only a small fraction (0.024%) above a 0.25% rate hike is being priced in. The day after Powell’s hawkish testimony to the Senate Banking Committee last week, the market was pricing in 0.135% of the additional 0.25% (i.e. more than half) that would deliver a full 0.5% rate hike. US Treasury yields have plummeted. Yields on the 2Y Treasury bond have fallen a further 28.4bp, and those on the 10Y bond are down 20.5bp to 3.699%, reversing just over half of the gains in yield we have seen since the January lows. This has not helped the USD, and EURUSD has risen to 1.0690, after toying with the 1.07 level several times. Better market sentiment today may see EURUSD retreat lower. Other G-10 currencies have also been supported. The AUD is now 0.6641, and the pound is back to 1.2099, while the JPY is now 134.51. Most of the Asian FX pack has made gains against the USD in the last trading period, with the CNY moving down to 6.9172.
- G-7 Macro: For the full lowdown on the latest US labour report, please see this note by James Knightley. The main elements of the report are as follows: The headline payrolls figure came in stronger than expected, at 311K, with only small revisions down to the previous release. But the average hourly earnings figure came in at only 0.2%MoM, to take wages growth to 4.6%YoY, lower than had been expected, and if this sort of wages growth persists, we should see annual wage inflation rates ease to the lower end of 4% over the coming months. The unemployment rate also edged up to 3.6% from 3.4% - mainly due to swings in the labour force, but it still counts. Today is pretty quiet for data, but tomorrow, we get US February CPI inflation data, which is likely to show a decent decline in the headline rate and a smaller decline in the core rate.
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