Shifting Sands
December 9, 2024
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–NFP about as expected at 227k (220k exp). However, Private payrolls were 194k vs 205k expected. So government payrolls rose, but they will be under the cutting knife next year. The Unemp rate upticked to 4.2%, enough to solidify expectations of an ease at the Dec 18 FOMC.
–Current EFFR is 4.58%. SOFRRATE has been 4.56 to 4.60 since the Fed cut on Nov 7. FFZ4 settled 9551.0, +1.25 (should end at 9552.5 on an ease). FFF5 settled 9564.0, +3.5. If the Fed eases 25 in Dec and holds off on Jan 29, then FFF5 would settle 9567.0 or 4.33%. FFG5 settled 9571.5, +4.5. So if 4.33 becomes the new EFFR, then this contract is indicating around a 20% chance of another cut in Jan. Does that make sense? If it does, then EFFR would be 4.08% going into the start of the Trump admin.
–Recent inflation levels: PCE yoy 2.3%, Core PCE 2.8%, CPI 2.6% (expected 2.7 on Wednesday). In this environment a real Fed Effective of 1.4% hardly would seem restrictive.
–Tectonic shifts over the weekend. Syria collapsed. China’s politburo eased, announcing it will embrace a “moderately loose” monetary strategy in 2025 (BBG) and will be “more proactive” on fiscal policy, pledging to “stabilize property and stock markets”. In short, a carbon copy of US policy. A politburo put. Hang Seng popped. China’s 10y yield hit a new low of 1.93%. It started the year at 2.57% and has slid lower without a significant retrace except for late Sept (from 2.04 to 2.21).
–South Korea’s Yoon is now forbidden to leave the country. The Korean Won is near the low of 2022 (level 1445) at current 1432. KOSPI at new low for the year. Theoretical question for US investors: can political upheaval actually cause selling in equity markets? Answer: sure, but not here. See Politburo (and Fed) policy above.
