Hawkish Fears Remain, but Fed Officials Reiterate Expectation for Three 2024 Cuts

Rate cut speculation remains in focus. Continued fear that the Fed will not ease monetary policy as much as expected in 2024 pushed rates 2-9bps higher across the curve in the morning. However, lower-than-expected durables goods order in February (1.3% versus the 1.4% estimate) and dovish commentary from Fed presidents Daly and Mester reversed some of the move. Daly and Mester backed the Fed’s most recent dot plot, saying that three 25bp rate cuts in 2024 is a reasonable baseline expectation. The comments sparked a rate decline throughout the afternoon, forcing short-term rates lower on the day and long-term rates ~5bps below their session highs. Equities declined on the possibility of a more-reserved Fed, with the S&P 500, DJIA, and NASDAQ down 0.72%-1.00%.

German inflation was below March forecasts. Momentum for a June ECB rate cut built today after Germany reported lower than expected inflation, as YoY CPI was 2.3% in March. 2.3% matches the lowest rate of price growth since November, which was previously not seen since June 2021. The data came after France reported a slowdown on Friday, though Italy and Spain most recently reported price growth acceleration. Futures markets have ~95bps of cuts priced in for 2024, where the first move is highly unlikely in April but is nearly locked in for June.

Oil prices surge to multi-month high after Israel-Iran tension boils. WTI crude futures rose to over $85 per barrel for the first time since October today after Iran’s Supreme Leader, Ayatollah Ali Khamenei, stated that Israel “will be punished” over recent airstrikes on Iran’s embassy in Syria. The Monday airstrikes killed at least 13, including seven Iranian military personnel. Iran also accused the US of wrongdoing, providing more evidence that the Israel-Hamas war is increasing tensions outside of the Middle East.