Doubts about a 25bp Fed hike tonight?
Today, Fed Governor Powell will present the conclusions of the Fed meeting, a crucial moment as the market believes it will mark the end of the Fed's rate hike cycle. Despite deteriorating macroeconomic indicators and another failure of a major US regional bank (FRB), the market believes there is a near 90% chance of a rate hike. Powell is also expected to emphasize that rates will have to remain high for an extended period of time as inflation remains high. However, there are doubts about how the Fed will take into account the recent failure of First Republic Bank and the ongoing debt ceiling situation. Note that there is no update on the US economic outlook and the dot charts.
ECB: A 25 Basis Point Hike Carved in Stone?
The next ECB meeting is coming up on Thursday and this morning two crucial data points were released. Eurozone core inflation saw a slight decrease in April from 5.7% to 5.6%, marking the first decline in 10 months. This is a positive sign that core inflation is heading in the right direction. Meanwhile, the ECB's bank lending survey indicated that credit standards "tightened considerably" in Q1. This shows that the ECB's monetary policy, which includes rate hikes and quantitative tightening, is starting to have an impact on the system. Source: Bloomberg
The Fed balance sheet is shrinking again
Over the last 4 weeks, the Fed’s balance sheet has reversed 36% of the post-SVB liquidity injections ($392 billion) with a total decline of $141 Billion. Source: Charlie Bilello
Inflation remains hot in the UK, lifting prospects for interest-rate hikes
Britain’s inflation rate remained stubbornly high at 10.1% in March. The pace was driven by the strongest increase in food prices in more than four decades. Economists had expected a slowdown to 9.8%. Traders ramped up bets on further rate increases from the BOE as the double-digit reading provided a wake-up call for investors who thought the tightening cycle was close to over. Source: Bloomberg
The European rate market sends a signal to the ECB!
For the first time in this rate hike cycle, the German 2-year yield is below the ECB deposit facility rate. Furthermore, the difference between the German 2-year yield and the ECB deposit facility rate is at its lowest level (-0.53%) since 2008. Another market signal of an ECB monetary policy mistake? Not sure, considering the current level of inflation in Europe. Source: Bloomberg
No Fed hike in March ? Seriously ??
The U.S. Treasury market is repricing all of the weekend's news regarding the SVB story. The result is a massive steepening of the U.S. yield curve, where the front end has massively outperformed the back end. Goldman Sachs is the first bank to declare that the Fed will not raise rates at its March FOMC meeting. Is the Fed's pivot back? Source: Bloomberg.
Traders see half-point Fed hike in March as more likely scenario after hawkish Powell
Fed Terminal rate now at 5.6% - via Bloomberg and HolgerZ
Today is 1st of March: ECB Passive Quantitative Tigthening (QT) begins
From today onwards, the European Central bank (ECB) will reduce the size of its balance sheet by €15bn per month (until June). ECB assets currently stand at €9T, of which government bonds €5T. Markets swallowed an effective net debt supply of €280bn in 2022, but with QT 2023's it balloons to + €600bn. Source: Bloomberg, Valery Tytel, Gustavo Philippsen Fuhr
