Elevator down
December 11, 2024
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–Yields up a few bps yesterday going into today’s CPI. Expectations are 0.3 m/m for both headline and Core. On y/y headline expected 2.7 from 2.6 and Core 3.3 from 3.3. Steady numbers…unless you drink coffee. Front end contracts remain convinced of a Fed ease one week from today. FFZ4 settled 9550.75. A price of 9547.25 would indicate 50/50 odds, but the Fed generally never disappoints market pricing. Ten year auction today as well.
–Ten year yield up 2.2 bps to 4.219%. Reds were weakest on the SOFR strip, down 3.5 (SFRZ5 -3.5 to 9522.5). USH5 contract topped on Sept 17 at 127-24, one day before the Fed’s initial 50 bp cut. Selling commenced. The low on Nov 6, one day before the Fed’s second rate cut of 25 bps, was 115-13, which was touched again on Nov 18, exactly two months after the first ease. Since then there was a bounce up to Friday’s high 119-17, but this week so far has seen selling back under 119. Feels like a “stairs up, elevator down” set-up.
–The value of USD is not under the Fed’s purview, but India’s rupee is making new lows. Larger GDP than the UK and nearly as large as Canada and Mexico combined. A strong USD helps in terms of the Fed’s inflation goals, but the new admin wants a weaker currency to support on-shoring.
Below is coffee chart:
