Highlights

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2024
December 01, 2024
SGH Insight
We expect Fed speakers will firm up expectations for the December FOMC meeting this week ahead of the blackout period. We anticipate speakers will guide toward another 25bp rate cut this month before slowing down the pace of rate cuts with a January skip that could become a pause if the labor market firms and inflation stalls.

The highlight of the week is the November employment report. Expectations are low with market participants anticipating only a 200k increase in nonfarm payrolls which when averaged with October would be a gain of only about 100k per month, not disastrous but not exciting either. A downside surprise would push the run rate of job growth below 200k, which would call into question the strength of the labor market and raise the risk of more rate cuts in 2025 than market participants currently anticipate. Also watch the unemployment rate for an upside surprise; the unemployment rate was 4.14% in October, very close to being rounded up to 4.2%.
Market Validation
Bloomberg 12/2/24
Rates traders are heeding the message from Fed Governor Christopher Waller and have boosted the expected probability of a quarter-point rate cut this month to around 68%, from 59% at the end of last week. What’s more, the outlook for three reductions over the next year on a cumulative basis has once again firmed up.
Image
Remember that Waller has been regarded as an important bellwether for the central bank since late November last year, when he indicated a shift in his usually-hawkish stance to a more dovish one. That change kicked off a wave of bets that the Fed’s next move would be to lower borrowing costs, which were proven prescient.

( BBG) 12/06 13:30 *US NOV. UNEMPLOYMENT RATE 4.2%; EST. 4.1%
Read Full Report
November 24, 2024
SGH Insight
Bottom Line

The Fed has positioned itself to slow the pace of rate cuts, and we think tactically it is anticipating that slowing will occur after the December FOMC meeting. We can’t guarantee that outcome; the direction is such that the momentum could build in favor of a December skip, although that outcome seems to require more confidence that the Fed is done cutting rates whereas speakers seem confident in the need for further rate cuts. Speakers won’t leave market participants completely in the dark going into the blackout and will likely firm up the guidance in early December.
Market Validation
Bloomberg 12/2/24
Federal Reserve Governor Christopher Waller said he’s inclined to vote for another reduction in interest rates when officials meet later this month, though data due before then could make the case for holding them steady.
“At present I lean toward supporting a cut to the policy rate at our December meeting,” Waller said in prepared remarks at a conference on the Fed’s framework review in Washington sponsored by the American Institute for Economic Research. “But that decision will depend on whether data that we will receive before then surprises to the upside and alters my forecast for the path of inflation.”
Waller said recent data had raised concerns that inflation may be stalling above the 2% target but added “there is no indication” that prices in key service categories should remain at their current levels or increase.
“I believe the evidence is strong that policy continues to be significantly restrictive and that cutting again will only mean that we aren’t pressing on the brake pedal quite as hard,” Waller said in the text of his remarks. “Another factor that supports a further rate cut is that the labor market appears to finally be in balance, and we should aim to keep it that way.”
Read Full Report
November 17, 2024
SGH Insight
Monday Morning Notes, 11/18/24

I am back from vacation and catching up on last week’s slew of Fedspeak. We focus this week’s note on that Fedspeak given the waning confidence among market participants in the Fed’s willingness to deliver another 25bp rate cut at the December FOMC meeting.

Bottom Line: It’s very clear the Fed is paving the way to a skip or a pause. The crux of the debate now is whether the Fed believes policy rates are already close enough to the neutral rate to skip at the December meeting, or is the Fed saying after it brings policy down another 25bp it will be in the range to slow the pace of rate cuts. We think it’s the latter given that speakers still anticipate multiple rate cuts and state that policy rates remain restrictive. Powell’s September 30 guidance on cuts in November and December likely still stands, and what appears to be hawkish rhetoric is setting the stage for a January skip.
Market Validation
Bloomberg 12/6/24
US Treasuries rallied and traders boosted
their bets on a Federal Reserve interest-rate reduction this
month after a mixed November employment report.
Yields on two-year notes, which are most sensitive to the
central bank’s policy, slid four basis points on 4.10% on Friday
after data showed both nonfarm payrolls and the unemployment
rate increased last month. Traders are pricing in about 21 basis
points worth of easing at the Fed’s December meeting, from about
16 basis points before the data.
Read Full Report
November 11, 2024
SGH Insight
Bottom Line: The near-term data, not speculation about Trump’s economic agenda, drives Fed policy, and the Fed sees that data as sufficient to start searching for an opportunity to slow the pace of rate cuts. Assuming the job market stabilizes, we think this more likely will occur in January rather than December, and we assign a 75% chance of a December cut. If post-election animal spirits drive activity and job growth, a skip will become a pause as the Fed will likely find it difficult to cut in March if the economy gains steam during the first quarter.

Typically, the Fed reaches consensus on policy changes over the course of more than one meeting, which implies a shift after the December meeting.Powell said the Fed is now only just beginning to think about slowing the pace of rate cuts. That suggests an expectation to follow through with the September SEP and cut rates in December, at which time it will have a more concrete discussion about likely skipping the January meeting.

We can’t at this juncture rule out that the Fed may opt to skip in December. The cleanest path for the Fed remains to cut rates in December and then use a combination of the press conference and a fresh SEP to guide to a skip in January. Still, last week we highlighted three reasons the Fed could use to pass on another rate cut at next month’s FOMC meeting, including either higher realized inflation, a firming of the labor market in the context of still strong growth (Powell sees growth as a driving factor in the run up in rates), or quickly rising market-based inflation expectations.
Market Validation
Bloomberg 11/13/24
Traders have grown more certain of a quarter-point Fed rate cut in December after inflation data came in line with economist estimates. They’re now pricing more than a 60% chance of a reduction next month, from a 50-50 probability seen on Tuesday.

Wall Street Journal 11/15/24
A Federal Reserve official said the central bank
could eventually need to slow down the pace at which it is lowering rates and
said it was too soon to say whether that should happen at the central bank's
meeting next month.

Another rate cut in December is "certainly on the table, but it's not a done
deal," said Boston Fed President Susan Collins in an interview Thursday.
"There's more data that we will see between now and December, and we'll have
to continue to weigh what makes sense."

The Fed's next meeting is Dec. 17-18. Officials will see data on inflation and
employment for November before that meeting.

Bloomberg 11/25/24
US Treasuries have added to the gains spurred by the late-Friday announcement of Scott Bessent — a Wall Street veteran who investors expect will take the sting out of the administration’s more aggressive trade and economic policy proposals — as President-elect Donald Trump’s Treasury secretary choice.
Monday’s rally trimmed yields by more than 10 basis points across five- to 30-year maturities, gaining momentum in New York trading amid a drop in oil. The dollar slumped by the most in more than two weeks before paring the loss.
“Bessent is viewed as a potentially moderating influence on the incoming administration’s policies,” said Shaun Osborne, chief foreign-exchange strategist at Scotiabank. “Favoring gradualism on tariffs, for example.”

Bessent, who runs macro hedge fund Key Square Group, has called for a gradual approach to implementing trade restrictions and has appeared open to negotiating the exact size of tariffs championed by the president-elect. In an interview with the Wall Street Journal, Bessent said his priority will be to deliver on Trump’s various tax cut pledges, while also cutting spending and “maintaining the status of the dollar as the world’s reserve currency.”
Read Full Report
November 07, 2024
SGH Insight
While the BOJ’s policy commentary in October certainly did not tee up a December rate move, it probably shifted the needle enough for the Bank to follow through with more messaging about the timing of another rate hike if it is forced to try to help arrest the yen’s slide.

In other words, the door to a hike in December is ajar.
Market Validation
Bloomberg 11/21/24
Bank of Japan Governor Kazuo Ueda gave the
clearest hint yet that the central bank’s next monetary policy
meeting will involve a live discussion over whether to raise
interest rates.
“It’s impossible to predict the outcome of the meeting at
this point,” Ueda said in response to questions at a Europlace
forum in Tokyo on Thursday. “The next meeting is December, but
there’s still a month to go. The vast amount of data and
information will become available between now and then.”
Read Full Report
November 07, 2024
SGH Insight
The collapse of Germany’s governing coalition on November 6 opens the possibility of less restrictive fiscal policy in 2025. However, over the short term it will not have a major impact on the eurozone’s largest economy.

Chancellor Olaf Scholz’s minority government aims to pass its 2025 budget before the end of the year. It is, however, uncertain whether the Social Democratic Party (SPD) and the Greens will secure enough votes in the Bundestag for passage. If the government fails in those efforts, the 2024 budget would be rolled over into 2025.

This is not uncommon in Germany. Typically, federal elections take place every four years in the fall, which means that protracted coalition negotiations can require extending the previous year’s budget. This mechanism ensures the government does not become insolvent, but it severely restricts its options to implement new investments and, therefore, boost growth in that window.
Market Validation
Bloomberg 11/12/24
Germany’s new finance minister dismissed fears the political turmoil in Berlin will trigger a funding freeze, pledging the federal government will be fully capable of functioning in the weeks before February’s early election.
Joerg Kukies, appointed last week after Chancellor Olaf Scholz fired his predecessor and brought a premature end to the ruling coalition, said it’s still unclear whether Scholz’s minority government can get a supplementary budget for this year and the 2025 finance plan approved in parliament.
To do so, they’ll need the votes of opposition lawmakers. Friedrich Merz, the leader of the center-right CDU/CSU alliance, signaled earlier Tuesday the group may be willing to cooperate on this year’s budget, but Kukies said the situation remained very much in flux.
He conceded that it’s “not realistic” that the 2025 budget will get approval by the end of the year, meaning the government will be forced to resort to a temporary finance planning process to keep funds flowing.
While it’s not an ideal state of affairs and some new projects may face delays, Kukies said it’s not technically problematic and has happened multiple times before, including earlier this year after a constitutional court ruling upended the government’s finances.
The government “can and will fulfill all of its commitments,” he told delegates at a Sueddeutsche Zeitung forum in Berlin. He’s due to attend a meeting of the Bundestag’s budget committee on Wednesday.
Read Full Report
November 07, 2024
SGH Insight
Powell Sets Up For a Pause
Bottom Line: The November FOMC meeting ended as expected with Powell skillfully avoiding making any market moving news. We think Powell is setting the stage for a pause at the January FOMC meeting assuming growth remains solid and the labor market firms, but there is a risk that the incoming data provides enough for the Fed to pull that forward to December.
Market Validation
New York Times 11/15/24
A strong economy is giving Federal Reserve officials room to move “carefully” as they lower interest rates, the central bank chair said.
Jerome H. Powell, the chair of the Federal Reserve, said that a solid economy with low unemployment, robust consumer spending and strengthening business investment gives the central bank room to take its time in cutting interest rates.
“The economy is not sending any signals that we need to be in a hurry to lower rates,” Mr. Powell said in a speech prepared for delivery in Dallas on Thursday. “The strength we are currently seeing in the economy gives us the ability to approach our decisions carefully.”
The Fed’s policy-setting committee meets next in mid-December, and while policymakers are expected to lower rates by a quarter point at that gathering, Fed officials themselves have made it clear that a reduction is not guaranteed.
Mr. Powell did not address December specifically in his prepared remarks. But officials have made it clear that they will be watching incoming data points — including inflation and jobs figures — as they decide what to do.
“The path for getting there is not preset,” Mr. Powell said on Thursday. “In considering additional adjustments to the target range for the federal funds rate, we will carefully assess incoming data, the evolving outlook, and the balance of risks.”
Read Full Report
November 06, 2024
SGH Insight
Last week we began highlighting that the Fed can’t skip a meeting without opening the debate about a pause, and market pricing moved further in the direction of a pause even before the economic landscape shifted with last night’s election results. In a sharp rebuke to Democrats and Vice President Kamala Harris, American voters returned Donald Trump to the White House. Voters also likely delivered the Republicans a trifecta with wins in the Senate and the House, although the latter still needs some vote counting to be assured. After winning the trifecta, Republicans can enact a more sweeping and expansionary agenda than expected just a few days ago.
The Fed will still cut interest rates this week, and at this point we think it likely the Fed will follow the September SEP and cut again in December. Even if the Fed follows through with a December cut, and assuming the labor market and the economy hold up, the Fed can respond to increased fiscal policy uncertainty by skipping the January meeting and begin an extended pause.

It would be a challenge now for the Fed to set up a pause without appearing overtly political. We expect Federal Reserve Chair Jerome Powell will reiterate that the Fed does not take politics into account when setting policy and can’t change the policy path ahead of any implementation of tariff, immigration, or fiscal policies. Indeed, even a pause after the December FOMC meeting will be observationally equivalent to a political reaction and may draw the ire of President-elect Trump.

Bottom Line: We hesitate to make sweeping predictions ahead of any policy implementation. One thing is for sure – Trump inherits a growing economy which the Fed has already begun to support by cutting rates. It gives him a tailwind, and it’s up to Trump and his advisors use the tailwind wisely. At the end of the day, Republicans will need to deliver on the campaign promise of a better economy, and that likely won’t happen with reckless tariff, immigration, and fiscal agendas.( nov 6)
Market Validation
Fed cuts rates by 0.25%, Powell deflects questions about Trump policies
By Alex Steger
Citywire 11/7/24
Powell was asked about the impact of the next administration’s policies on inflation and the economy but said that these would not play into the Fed’s immediate decisions.
‘Let me say in the near-term, the election will have no effects on our policy decisions. As you know, many, many things affect the economy and anyone who writes down forecasts in their job will tell you that the economy is quite difficult to forecast looking out past the very near term,’ he said.
‘Here, we don’t know what the timing and substance of any policy changes will be. We therefore don’t know what the effects on the economy would be. Specifically, whether and to what extent those policies would matter for the achievement of our goal variables, maximum employment, and price stability. We don’t guess, we don’t speculate, and we don’t assume.’

Bloomberg 11/25/24
US Treasuries have added to the gains spurred by the late-Friday announcement of Scott Bessent — a Wall Street veteran who investors expect will take the sting out of the administration’s more aggressive trade and economic policy proposals — as President-elect Donald Trump’s Treasury secretary choice.
Monday’s rally trimmed yields by more than 10 basis points across five- to 30-year maturities, gaining momentum in New York trading amid a drop in oil. The dollar slumped by the most in more than two weeks before paring the loss.
“Bessent is viewed as a potentially moderating influence on the incoming administration’s policies,” said Shaun Osborne, chief foreign-exchange strategist at Scotiabank. “Favoring gradualism on tariffs, for example.”
ImageBessent, who runs macro hedge fund Key Square Group, has called for a gradual approach to implementing trade restrictions and has appeared open to negotiating the exact size of tariffs championed by the president-elect. In an interview with the Wall Street Journal, Bessent said his priority will be to deliver on Trump’s various tax cut pledges, while also cutting spending and “maintaining the status of the dollar as the world’s reserve currency.”
Read Full Report
November 03, 2024
SGH Insight
Fed Speak and Discussion

The Fed will cut rates 25bp this week and signal that it anticipates further rate cuts in this cycle, but Powell will add that the exact timing and number of cuts remains data dependent.

There hasn’t been serious conversation about skipping the meeting, and the employment report didn’t give reason for the Fed to have a change of heart during the blackout period. If Trump wins the election this week, we anticipate that Powell will say that outcome does not affect the Fed’s decisions and that the Fed will react as appropriate to fiscal policy as it is implemented.

We think it’s too early to expect the Fed to entertain a conversation of skipping a meeting. If the Fed was to skip or pause in this cycle, we think it more likely to happen in January than December. The Fed expects to bring policy to a more neutral setting, and policy rates at 4.375% after the December meeting would be still well above upper-end estimates of the neutral policy rate. If growth stays elevated and the labor market firms up, at that point the Fed can signal a more gradual pace of rate cuts, thereby deferring a conversation about a pause until 2025.

Moreover, we think market participants are getting too far ahead of the story on the implications of new tariffs for inflation. Not only is the ultimate magnitude of tariffs uncertain but also, they will be at least initially disruptive, and the possibility of trade wars creates additional uncertainty for firms. Moreover, the Fed is likely to view any inflation from tariffs as transitory. Similarly, deportations on a scale significant from a macro perspective will also be disruptive for firms.
Market Validation
*FED LOWERS BENCHMARK RATE 25 BPS TO 4.5%-4.75% RANGE
*Powell: Fed Is Not on Pre-Set Course, Will Continue To Make Decisions Meeting-By-Meeting
*Fed's Powell: We're On a Path To More Neutral Stance, Must See Where Data Lead Us

US election will have no near-term effect on Fed policy: Powell
Nov. 7 (AFP) -- The US presidential election outcome will have "no effects" on central bank policy decisions in the near-term, Federal Reserve Chair Jerome Powell told reporters Thursday, after Republican Donald Trump's victory at the polls.
"We don't know what the timing and substance of any policy changes will be. We therefore don't know what the effects on the economy would be," he added after the Fed unveiled its rate decision. "We don't guess, we don't speculate, and we don't assume."
da-bys/acb

Stocks Near Highs as Powell Gives ‘No Skip Signs’: Markets Wrap
Fed cuts rates for second-straight meeting to support economy
Policymakers change language around job market, inflation
By Rita Nazareth
(Bloomberg) -- Stocks hit fresh all-time highs, Treasury yields fell and the dollar dropped the most since August, with Jerome Powell saying that even after Thursday’s rate cut, policy is still restrictive.
The S&P 500 was up 0.8%. Treasury 10-year yields declined 10 basis points to 4.34%. The Bloomberg Dollar Spot Index fell 0.6%. The Fed Chair said he doesn’t rule “out or in” a December rate cut. He said recent indicators suggest the economy keeps expanding solidly. While inflation expectations remain anchored, core prices remain somewhat elevated, he said. Powell added that in the near term, the election will have no effect on policy.

Bloomberg 11/25/24
US Treasuries have added to the gains spurred by the late-Friday announcement of Scott Bessent — a Wall Street veteran who investors expect will take the sting out of the administration’s more aggressive trade and economic policy proposals — as President-elect Donald Trump’s Treasury secretary choice.
Monday’s rally trimmed yields by more than 10 basis points across five- to 30-year maturities, gaining momentum in New York trading amid a drop in oil. The dollar slumped by the most in more than two weeks before paring the loss.
“Bessent is viewed as a potentially moderating influence on the incoming administration’s policies,” said Shaun Osborne, chief foreign-exchange strategist at Scotiabank. “Favoring gradualism on tariffs, for example.”
ImageBessent, who runs macro hedge fund Key Square Group, has called for a gradual approach to implementing trade restrictions and has appeared open to negotiating the exact size of tariffs championed by the president-elect. In an interview with the Wall Street Journal, Bessent said his priority will be to deliver on Trump’s various tax cut pledges, while also cutting spending and “maintaining the status of the dollar as the world’s reserve currency.”
Read Full Report
November 01, 2024
SGH Insight
A November cut has been all but a fait accompli even before this week’s maiden budget from Reeves after Bailey said expected rates to come down gradually following the Bank’s last meeting on September 19.

After cutting Bank rate 25bps in August in response to slower growth and slowing inflation, the BOE held rates steady at 5% on September 19. It was sidestepping the UK government’s planned budget release on October 30, but also to avoid adding to market volatility in the lead up to a 50 bps cut by the US Federal Reserve.

The MPC members in September voted 8:1 to hold rates steady, with Swati Dhingra voting to keep going with another 25 bps rate cut.

A similar vote count may result in the opposite direction as Bailey tables a 25bps cut at next week’s meeting with Catherine Mann against a cut, a position she is likely to repeat through year’s end, and Dhingra, this time, likely to get her rate cut wish.

As we noted in our last report (see 9/19/24; “BOE: Bailey sets Stage For November Cut”) Bailey was careful in his post September meeting remarks not to let easing expectations slip too far despite the Bank holding steady at that meeting.

This upcoming meeting is a fresh forecast round so even if the Bank staff marks up their near term inflation and growth projections on the back of the expected Budget plan impacts, they will continue to chart a course for Bank rate over time to be at least 100 basis points below the current 5% rate.
Market Validation
Bloomberg 11/7/24
The Bank of England cut borrowing costs for
the second time this year but stopped short of signalling faster
easing, warning that the budget will drive up inflation by as
much as half a percentage point.
Eight members of the Monetary Policy Committee led by
Governor Andrew Bailey voted to lower the benchmark interest
rate by a quarter point to 4.75%. Catherine Mann, one of its
external officials, was the lone dissenter, preferring to hold
at 5%. The outcome was widely anticipated by economists.
“We need to make sure inflation stays close to target, so
we can’t cut interest rates too quickly or by too much,” Bailey
said in a statement on Thursday in London. “But if the economy
evolves as we expect, it’s likely that interest rates will
continue to fall gradually from here.”
Read Full Report
October 31, 2024
SGH Insight
Its higher-for-longer strategy appears to be paying off. Third quarter year-on-year headline CPI slowed to 2.8% versus a revised 3.8% in the second quarter and bettered forecasts of a 2.9% outcome.

Though in the right direction the pace of slowing in those price metrics is far from collapsing and will not motivate the RBA to cut rates on November 5, particularly not on the same date as the potentially market moving US elections.

RBA deputy Andrew Hauser, just back from meetings with his international counterparts at the IMF-World Bank meetings last week, is likely to reinforce that holding pattern when members meet next week.


So when will the Bank turn its attention to an easing cycle? As we last wrote (see SGH 10/3/24; “RBA: Hawkish Hauser”), a December 9-10 easing is probably only likely if the economy deteriorates sharply.

The Bank likely wants to see another round of GDP growth data (due out December 4) and the fourth quarter inflation report (due January 29, 2025) ahead of the February 17-18 forecast round meeting before it is willing to take its foot off the policy brake.
Market Validation
Bloomberg 11/5/24
Australia’s central bank held its key
interest rate at a 13-year high on Tuesday, aiming to keep up
the pressure on stubbornly sticky inflation while joining much
of the world in waiting for the outcome of US elections.
As expected, the Reserve Bank left its cash rate at 4.35%,
marking a year at that level, and restated that it isn’t “ruling
anything in or out” on policy. The RBA’s board highlighted the
“high level of uncertainty” about the international outlook.
Underlying inflation “remains too high,” the rate-setting
board said in a statement. “It will be some time yet before
inflation is sustainably in the target range and approaching the
midpoint. This reinforces the need to remain vigilant to upside
risks to inflation and the board is not ruling anything in or
out.”
Read Full Report
October 31, 2024
SGH Insight
Bottom Line: With employee compensation trends still cooling, the Fed will remain confident that inflation can remain on a path to 2% even though economic activity has outpaced potential growth for the past two quarters and job growth surprised on the upside in September. That provides the Fed room to continue cutting rates as it brings policy to a more neutral setting. As we have written, we think it likely the Fed brings rates down a total of 100bp this year.
Market Validation
Bloomberg 11/1/24
Treasury futures push to session highs in a bull-steepening move after October payrolls change fell short of median estimate with September change revised lower. The two-month net revision subtracted a total of 112k jobs.
On the day Treasury yields flip to richer by up to 7bp across front-end of the curve, which leads gains, steepening 2s10s spread by 3.5bp on the day
Fed-dated OIS prices in a combined 45bp of rate cuts over the remaining two meetings this year vs 42bp at Thursday’s close
Read Full Report
October 28, 2024
SGH Insight
A sharply weaker yen could tip the Bank of Japan (BOJ) into a December rate hike after Japanese Prime Minister Shigeru Ishiba’s ruling party failed to hold onto its majority in weekend elections, marking the LDP’s worst defeat in 15 years.

The electoral beating which has plunged the government into disarray as the LDP scrambles to co-opt reluctant coalition partners into helping it cling to power, sent the Japanese currency sharply lower and is testing the BOJ’s preference to sit on the sidelines for the rest of the year.

Had Ishiba won an outright majority the BOJ would have passed not just on a rate hike at the upcoming October 30-31 meeting as expected, but also probably in December as well.

Now, however, fearful a sharply weaker yen will severely damage consumption, the BOJ could be forced to try to help prop up the yen with a rate hike at its December 18-19 policy meeting.
Market Validation
TOKYO, Reuters 10/31/24
The Bank of Japan maintained ultra-low interest rates on Thursday but said risks around the U.S. economy were somewhat subsiding, signaling that conditions are falling into place to raise interest rates again.
The central bank also projected inflation would move around its 2% target in the coming years, stressing its resolve to keep raising borrowing costs if the economy sustains a moderate recovery.
"Looking at domestic data, wages and prices are moving in line with our forecasts. As for downside risks to the U.S. and overseas economies, we're seeing clouds clear a bit," Governor Kazuo Ueda told a news conference.
Ueda's remarks were less dovish than those made before Thursday's meeting that the BOJ can "afford to spend time" scrutinizing the fallout from risks such as U.S. economic uncertainties and volatile financial markets.
The dollar briefly fell to 151.92 yen from levels above 153 yen after Ueda's remarks, which were interpreted as heightening the chance of a rate hike in December.
Read Full Report
October 27, 2024
SGH Insight
The Fed, however, can’t change the path of policy based on campaign proposals alone. Ending rate cuts on a Trump victory would be seen as overtly political; the Fed needs to see actual policies implemented to adjust its anticipated policy path. Absent that, the Fed will focus on the implications of incoming data on its forecast as the primary policy guide. Spiking inflation expectations on the back of a Trump victory, however, could give the Fed an avenue to respond more quickly ahead of government policy implementation.
Market Validation
Wall Street Journal 11/7/24
Asked about whether the Federal Reserve is considering a pause in rate cuts in December, Chair Jerome Powell said officials haven't made any decisions yet as they move the stance of monetary policy down to a more neutral level.
(Benzinga Newswire)Fed Chair Powell Says We Would Be Concerned If We Thought Long-term Inflation Expectations Are Anchoring Higher; That's Not What We See; Overall Inflation Expectations Are Consistent With 2% Inflation;
Read Full Report
October 24, 2024
SGH Insight
The meeting of China’s NPC (National People’s Congress) Standing Committee, which was originally scheduled to be held this week to approve China’s new round of fiscal stimulus and issuance of new bonds, has been postponed to the first half of November.
Market Validation
South China Morning Post 10/25/24
China's top legislature will convene a meeting from November 4-8 to discuss a
wide range of issues facing the world's second-largest economy.

The date was announced at a Friday meeting chaired by Zhao Leji, chairman of
the Standing Committee of the National People's Congress.

The upcoming meeting of the NPC Standing Committee arrives at a time when a
new US president will be elected on November 5 and as new China policy looks
to pose a fresh test to Chinese trade, tech and economy.

The meeting had been widely expected to be held at the end of this month.
Read Full Report
October 23, 2024
SGH Insight
Update on the Near-Term Rate Path

Market participants continue to run hard on the speculation of not only a Trump victory, but a Republican sweep across Congress, which in turn prompts questions from clients regarding the implications for monetary policy. A reminder of our views:

1. In the near term, a Trump victory alone is not likely to change the Fed’s policy path. The Fed is on track for rate cuts in November and, we think, December as it recalibrates policy to a more neutral stance.
Market Validation
Bloomberg *POWELL: IN NEAR TERM, ELECTION WILL HAVE NO EFFECT ON POLIC
Read Full Report
October 22, 2024
SGH Insight
There will be plenty of commentary from European Central Bank and other central bank officials around the IMF meetings in Washington, DC.

One common theme, and new development coming out of the October 17 ECB Governing Council meeting, will be a hesitation by ECB officials even if not their base case to rule out an acceleration to a 50-bps pace of rate cuts — if the data warrants.

We think the data almost certainly will warrant a 50. If anything, to us the data at hand has already been pointing to the need for some additional front-loading of rate cuts by the ECB.
Market Validation
Bloomberg 10/23/24
Traders are adding to wagers that the
European Central Bank will lower interest rates by half a
percentage point in December to a bid to prop up the bloc’s
flagging economy.
Swaps imply a 45% chance of a reduction of that size at the
final ECB meeting of the year, with 25 basis-point cuts priced
at every gathering through to June. Before last week’s decision
to cut, markets only envisaged a quarter-point move in December.
The repricing picked up after Reuters reported Wednesday
that the central bank is starting to debate whether interest
rates should be cut below neutral, to a point at which they’re
stimulating the economy. Inflation is already below the 2%
target and former powerhouse Germany is in recession.
Read Full Report
October 20, 2024
SGH Insight
The Fed is poised to cut rates 25bp at the November FOMC meeting. It’s most likely that it will message an expectation for further rate cuts but be noncommittal with regards to timing. While the Fed’s ongoing commitment to data dependency will continue to frustrate market participants as they try to price individual meetings, there is widespread support among FOMC participants for lowering policy rates toward a neutral policy setting.

We don’t think the November FOMC meeting will be a repeat of September. The shifting dynamics during the last blackout period were unusual. We think there is little appetite among FOMC participants for a repeat performance next month. Instead, they will default to the consensus established in the September SEP and cut rates 25bp.
Market Validation
MT Newswires 11/7/24
The Federal Reserve's monetary policy committee on Thursday reduced its benchmark lending rate by 25 basis points, following a 50-basis-point cut in September.

The Federal Open Market Committee reduced interest rates to a range of 4.50% to 4.75% from 4.75% to 5%, in line with a Bloomberg-compiled consensus.

"Since earlier in the year, labor market conditions have generally eased, and the unemployment rate has moved up but remains low," the FOMC said in a Thursday statement after its two-day meeting. Although inflation has made progress toward policymakers' 2% target, it remains "somewhat elevated," according to the statement.

Official data last month showed that US consumer inflation rose at a more-than-expected pace in September both sequentially and annually. Bureau of Labor Statistics data showed earlier this month that US job creation fell well short of Wall Street's estimates in October amid a Boeing (BA) strike and potential hurricane-related disruptions. The strike that lasted for more than seven weeks ended earlier this week.

"The committee judges that the risks to achieving its employment and inflation goals are roughly in balance," the FOMC said Thursday. "In considering additional adjustments to the target range for the federal funds rate, the committee will carefully assess incoming data, the evolving outlook, and the balance of risks," the FOMC said, reiterating its remarks from September.
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October 16, 2024
SGH Insight
The Governing Council of the European Central Bank started the first day of its two-day monetary policy meeting today. Since switching our call on September 23 from a hold to a cut at this October 16-17 meeting, markets have gone to fully pricing in a cut for tomorrow, as well as another 25-bps cut in December.

The ECB is certain to deliver that 25-bps cut tomorrow from 3.5% to 3.25% on the benchmark deposit rate. With that in mind, market participants will be looking for any messaging from ECB President Christine Lagarde and the official communique language that would shed light on the path of future rate cuts, in particular December.

Our simple response to questions as to whether the communication will be “hawkish” or “dovish” has been that the ECB will stick to its mantra that it will take decisions meeting by meeting, and dependent on the data (data dependent of course does not mean “data point” dependent). To those looking for clearer guidance on the December cut, this could be disappointing, in theory, and construed as an indication that the next meeting is open, and not a “done deal” for a cut as markets have priced.
Market Validation
Bloomberg 10/17/24
The European Central Bank lowered interest rates for the third time this year as a hastier retreat in inflation allows it to offer support to the region’s stuttering economy.
The key deposit rate was cut by a quarter-point to 3.25% — as predicted by all analysts in a Bloomberg survey. The ECB said the process of taming prices is “well on track” but didn’t offer any clues on when or how quickly borrowing costs will be reduced from here.
The ECB “will keep policy rates sufficiently restrictive for as long as necessary to achieve this aim,” it said in a statement. “The Governing Council will continue to follow a data-dependent and meeting-by-meeting approach to determining the appropriate level and duration of restriction.”
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October 16, 2024
SGH Insight
Broad slowing in Canada’s inflation has opened the door for the Bank of Canada (BOC) to cut rates by as much as 50 basis points at its upcoming meeting.

The BOC will almost certainly cut rates on October 23 with the only question whether BOC Governor Tiff Macklem saw enough price moderation in September to warrant a rate cut to 4% or 3.75% late this month.

More confident than ever that it has inflation largely licked, the BOC’s concern has more recently started to turn toward the downside risk to inflation.

It has said it is actively looking to stimulate Canada’s sagging economy with multiple rate cuts, and has been looking to be reassured that the slowing price trend is in train in order to be more aggressive with policy loosening.
Market Validation
Bloomberg 10/23/24
The front end of the Canadian curve outperforms after Bank of Canada cut interest rates 50bp to 3.75%, in line with estimate. Leading into the decision, the Bank of Canada OIS market was pricing in around 45bp of rate cuts, or roughly 90% chance of a half-point move.
Canada 2-year yields drop back below 3%, trade richer by around 3.5bp on the day in the aftermath of the decision and outperform on the curve — 2s10s Canada spread rises to session wides and trades higher by almost 4bp on the day
Canada 10-year yields drop back to near unchanged on the day, trading around 3.235%
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