Morning Call Script - 21 Sept 2023
Overnight asset drivers & the impending data calendar
FED = higher for longer vs soft landing
2024: The largest change from June saw 10 of 19 participants now having an above-5% call for 2024 which despite the very wide range of forecasts for next year indicates a median fed-funds rate of ~ 5.125%. This is just a quarter point lower than the midpoint of the current range. In June however the same group forecast a 2024 dot of 4.625%....
How much should we follow their forecasts? Did we need the Fed to tell us SFRZ4 was too low?... As mentioned in my preview yesterday, "it's the data (Labour, Housing, ECI and CPI) that prints in the coming weeks before the November meeting that will determine if we're at peak Fed rates, if we've already reached restrictive, if the market's pricing for the Fed is correct and they will be cutting in March 2024." The SEP was ultimately a mark to market exercise after an exceptionally strong Q3 for the US economy, now the impending data will be the driver going forward, the new news for mr price... it's been the same question all year since FinTwit started focusing on the predictive powers of an inverted yield curve, how quickly will the US economy slow...
2026: BMO point out the policy rate is now projected to remain above its longer-run average level through the end of 2026
The trend towards a higher long run level continues with 5 forecasts now above 2.75% vs 3 at the previous SEP. This is a bubbling theme on harster.com given its currently a key anchor to longer dated Treasury yields (which just lost the BoJ dampener) it will be a very important event risk when not if it is indeed raised at coming SEP meetings...
Rates are higher but the economic mix is also better ... higher 2024 growth as well lower 2024 UER.. soft landing is still plausible
Fed commentaries collated, curated and filtered on harkster.comovernight ( FT News Briefing, WSJ, Fidenza Macro, Nordea, Bloomberg)
FX: USD exceptionalism .... stronger growth, higher for longer yield .... USD has rallied overnight with EURUSD 1.0635, USDJPY 148.35, GBPUSD back to the post CPI lows 1.2320 and the commonwealths losing the most... AUDUSD 0.6408 and NZDUSD 0.5910
In line with FX and the weak Nasdaq close (WSJ), Asian shares are a sea of red whilst oil continues its retreat from recent highs (ING Commodities Feed)
A podcast for the commute... Danielle DiMartino Booth: Jay Powell Just “Went Way Off Script” At September Fed Meeting
SEK (08:30): Riksbank
CHF (08:30): SNB
NOK: (09:00): Norges
GBP (12:00): BoE
USD (13:30): Initial Claims and Philly Fed Manu Index
USD (15:00): US Existing Home Sales
EUR: ECB Lagarde (15:00) and Schnabel (15:40)
Harkster Preview: BoE Decision Tree
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