BOE Shifts Away from Rate Hikes, U.S. NFP Looms

Long-term rates fall 5bps ahead of tomorrow’s labor data. The rate curve bull flattened ahead of tomorrow’s NFP and unemployment rate figures, as long-term rates dropped 5bps while short term rates were little changed. The data is expected to reveal diminished labor demand; nonfarm payrolls growth is forecasted to decline to +185k in January, while the unemployment rate is expected to rise 0.1% to 3.8%.  Meanwhile, WTI crude fell to ~$74 per barrel after reports emerged of a deal to pause the Israel-Hamas war to free civilian hostages.

Bank of England holds rates steady, removes warning that it may have to hike rates again. The BOE signaled today that hikes are off the table after holding their policy rate at 5.25%. While the BOE showed increased comfort with rate cuts, they failed to offer a specific timeline. BOE Governor Andrew Bailey stated, “We need to see more evidence that inflation is set to fall all the way to the 2% target, and stay there, before we can lower interest rates.” However, he acknowledged that “we’ve come a long way” in the fight against inflation, which was most recently at 4.0% YoY on a headline basis after a peak of 11.1% in October 2022.

New York Community Bank (NYCB) Q4 earnings results stoke wider credit concerns. NYCB’s earnings miss and dividend reduction have caused market fears about possible credit stress at community and regional banks to resurface. Declining commercial real estate values are a key concern – the IMF reported early this month that CRE values in the US have fallen by 11% since March 2022, the most compared to any prior tightening cycle. Regional bank stocks declined by the most since March yesterday, and the KRE is down ~8.6% since Monday.