Model Signal Alerts
October 19, 2023
US rates continue to push higher in the overnight Asia session with what would appear to be footprints of swap paying in 10y behind the move. Remember that Powell is speaking today at 5 p.m. London time.
I wouldn’t count on him giving Bonds a much-needed relief. I opined on it yesterday on Twitter, but it’s again all about optionality. The more I think about it, the more I am convinced that a pausing policy setting is virtually impossible as finding an equilibrium is hard to manoeuvre. A stop-start monetary policy would possibly cause more harm than good, so they have no other option but to continue pressing on, even though this could mean fewer rate hikes going forward.
It will left to be seen whether today’s appearance at the Economic Club of New York, with Q&A, has the potential to be pivotal for near-term duration, depending on wider geopolitical inputs. With the Fed blackout beginning on Saturday, it is the last chance to steer the market for 1 November (3.8bp priced at yesterday’s close and cumulative 13.2bp to the December meeting), and it is an opportunity to expand or explain the recent focus on the trade-off between hikes and long-end term premium.
With yields backing up, the USD is outperforming with high-beta FX struggling. AUD felt extra pressure after noisy jobs data showed tight labour markets but offered no smoking gun on a November hike, prompting popular longs to unwind. JGB yields continue to probe higher after a weak tap auction, though there is no sign of BoJ step-in yet. China housing issues remain key, with mainland stocks sliding.
As highlighted in yesterday’s mid-week update, S&P stalled at crucial levels, which prompted the momentum model to take another short. This was rather well-timed and now opens the possibility of revisiting the recent lows, as we are also trading below the 200 ema.
Let’s see what else has been flagging since yesterday.