Whipsaw
November 5, 2021
–Sept ’22 Short sterling leapt 28.5 bps yesterday to 9897.5, as the Bank of England left rates unchanged. The markets had found Carney to be unreliable, and Andrew Bailey is following right along the same path. In the US, it was the forward EDU’23 that was the star performer of the curve, rallying 11.5 to 98.695. The BOE move (or lack thereof) caused second thoughts about the Fed’s prospects of actual rate hikes. For example, FFF’2/FFF’3 calendar (Jan’22 to Jan’23 FF spread) had been around 75 bps, indicating 3 hikes over 2022. Yesterday it fell 6.5 to 67.5. The curve steepened from 5’s out, as the 5y yield fell 8.3 while the thirty-yr yield eased only 2.7. While Powell carefully laid a long-term structural foundation of programs and communication to prevent a taper tantrum, other central banks have contributed to whipsaw moves. It’s worth bearing in mind that we don’t know what the Fed of 2022 is going to look like, as Powell has not yet been re-appointed and political losses by the Dems may spark the Biden administration to employ extra flair in shaping the central bank of the future.
–Unit labor costs in yesterday’s productivity report were +8.3%. The last employment cost index number also raised some eyebrows, yet at Wednesday’s presser Powell said that current inflation is not driven by wage gains. Today features the Employment Report, with NFP expected 450k and yoy Avg Hourly Earnings expected 4.9% from 4.6% last.
–Wow, something new in government: “I went and knocked on doors and I listened to people. They told me what their problems were and told me what their complaints were and I listened,” said [Edward] Durr, first-time office holder who beat NJ State Senate President.
