Beige Book likely to cite moderating growth
September 6, 2023
–Waller comments yesterday suggested balanced risks as the economy slows, with the possibility of just one more hike. He said the Fed can now wait and see how data evolves. However, rates jumped with red sofr contracts leading the way. SFRU4 was the weakest contract on the board settling 9533 or 4.67%. The low in this contract has been 9522 on Aug 28; the low settle on that date is 9528. SFRU3/SFRU4 one-year calendar settled exactly at -75 bps, suggesting three eases over the coming year. The most inverted one-year spread is SFRH4/H5 at -125.5 (9470/9595.5).
–The ten year yield rose nearly 10 bps to 4.264%, while the thirty year rose 9.2 bps to 4.374%. Treasury auctions of 3s, 10s, and 30s next week, and heavy corporate supply is also pressuring the rate complex. A surge in energy prices as the Saudis extended production cuts could have negative inflation implications. After spending May through early July in a range of 68 to 72/bbl, CLV3 settled yesterday at 86.69, +1.14.
–News today includes Balance of Trade, and ISM Service PMI, expected to be down slightly from 52.7 last. Given that Powell has cited Core Services as a sticking point on inflation, this report could carry a bit of extra weight, especially if the employment component were to print sub-50; it was 50.7 last. The Service Price index was 56.8 last, expected to be somewhat lower. Beige Book in the afternoon.
