Daily Market Color

Central Bank Meeting Insights and CPI-Eve

Rates muted ahead of tomorrow’s CPI data. Swap rates and Treasury yields were mostly unchanged today, as financial markets remain focused on November inflation data slated for release tomorrow AM. Median forecasts currently call for a 3.1% YoY rise in headline and a 4.0% YoY rise in core inflation – both well above the Fed’s 2.0% target but a significant improvement since the beginning of the Fed’s hiking cycle. Meanwhile, the NASDAQ, S&P 500, and DJIA climbed 0.2% – 0.4% throughout the trading session, despite a significant down day for the “Magnificent Seven” stocks that have led the way for the majority of the recent rally.

U.S. CPI (Consumer Price Index) History Graph

Surveyed economists say BOE may warn against cuts. Increased risk of recession in the UK has fueled bets for 80 bps of cuts during 2024, up from 50bps just six weeks ago. Policymakers disagree with the futures market; the BOE expects inflation will only return to 2% target levels by YE 2025, and Governor Bailey recently told markets that they are “underestimating” inflation stickiness. Considering the BOE’s messaging, UK economists surveyed by Bloomberg concluded that the BOE will double down on a “higher for longer” narrative this week by warning markets that rates must remain high for the foreseeable future. Some, such as chief UK economist at Deutsche Bank Sanjay Raja, even speculate that the BOE may explicitly push back against current market pricing in the meeting minutes.

U.K. Policy Rate Outlook Graph

The end of negative interest rates in Japan was likely overstated. Implied probabilities for a BOJ hike at the upcoming December meeting have plummeted since Thursday, as futures now suggest a ~4% likelihood from ~35% previously. Originally spurred by BOJ Governor Ueda’s comments that his job would become more difficult after year-end, hike bets faded after a Bloomberg report outlined that BOJ officials need further evidence that wage growth would be able to support sustainable inflation amid a policy shift. The Yen dropped on the news and closed at over 146 per dollar after reaching ~142 per dollar last Thursday.

USDJPIY (Exchange between US and Japan) Spot Exchange Rate Graph

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