The Fed's balance sheet is now at its lowest level since March 2021, down $1.3 trillion from its peak in April 2022.
How much more QT is needed to unwind the massive QE from March 2020- April 2022? $3.5 trillion. Source: Charlie Bilello
The Fed said that a March rate cut is "unlikely," yet futures are still pricing in a 39% chance it happens
Even as the Fed said they cannot cut rates until inflation is comfortably moving to 2%, markets still see 6 cuts in 2024. There's even a growing 23% chance of 7 interest rate cuts this year. Markets are pricing in a rate cut at EVERY remaining Fed meeting this year. As highlighted by the Kobeissi Letter, if the Fed is on track for a "soft landing," why do we need to many rate cuts? Source: The Kobeissi Lette
Divided Bank of England boe leaves policy unchanged, says interestrates are ‘under review’
- Inflation is projected to fall temporarily to the Bank’s 2% target in the second quarter of this year before rising again in the third and fourth, due to the varying contribution of energy prices to annual comparisons. - Headline inflation is not expected to return to target again until late 2026, the Bank’s newest Monetary Policy Report projected. - Bank of England: 6 votes to hold rates, 2 votes to hike, 1 vote to cut This is the 6th time in the BoE's 295 meeting history that we've seen a 3 way split vote. On most occasions (except for '06) - the doves have won & BoE have gone on to cut rates sharply https://lnkd.in/e64nMDB6
Powell “stayed away from addressing the banking sector but the sharp decline in regional shares is certainly getting attention at the Fed.”
Could the combo "March cut is fully priced out + regional bank stress building" trigger a temporary spike of the VIX? Source: Carl Quintanilla
Bank of England day ! A Shift in Inflation Outlook and Monetary Policy?
💡 Today, the Bank of England (BOE) is convening for its highly anticipated meeting, and we're closely monitoring it for potential shifts in their monetary policy tone. The BOE's impending Monetary Policy Committee decision promises to be intriguing, with current expectations leaning towards maintaining the benchmark rate at 5.25%. 📉 Indeed, a significant twist in the narrative has occurred. The UK's inflation outlook has undergone a substantial revision, with current projections indicating a return to the 2% inflation target by the summer of 2024 – a whole year earlier than previously anticipated. This could have far-reaching implications. 📊 Adding to the intrigue is the possibility of a single vote in favor of a rate cut and a potential softening of the BOE's previous tightening stance. While the risk remains that the BOE might stick to its hawkish position, the evolving economic landscape could set the stage for an earlier easing cycle, potentially commencing as soon as June. 💬 The shifting dynamics of inflation and the subsequent responses by central banks are pivotal indicators for market movements. Fixed income investments may see considerable benefits from these potential developments.
As we are less than 24 hours away from the first Fed meeting of 2024, odds of rate cuts are pulling back
Odds of a rate cut this week are down to 2% and odds of a rate cut in March are down to ~40%. This is the lowest probability of a March rate cut since November 2023. Still, futures are pricing-in a base case of 6 rate cuts for a total of 150 bps in 2024. - All eyes will be on Fed guidance on June 30zh Source: The Kobeissi Letter
US Bankruptcy filings keep moving higher
This sounds like a logical consequence of 2 years of aggressive FED tightening but still something to keep an eye on Source: Win Smart, CFA
🇯🇵 Hedge Funds, Asset Managers Take Opposite Yen Bets Amid BOJ Talk - Bloomberg, C.Barraud
Hedge funds and asset managers were split on their yen views as the Bank of Japan laid the ground for an end to its negative-rate policy. Leveraged funds cut net yen shorts to the lowest level since February 2023 in the seven days ended Jan. 23 when BOJ announced its last policy decision, according to a report from the Commodity Futures Trading Commission. In contrast, asset managers, such as pension funds and insurance companies, boosted net shorts by the most since May when the investors switched to shorts from longs.
