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US Treasury yields were up by 5-7bp on Thursday. The Fed’s preferred inflation gauge, the Core PCE deflator for October came at 3.5%, in-line with estimates and lower than September’s 3.7% print. US credit markets saw IG CDS spreads tighten 0.7bp and HY tightening 2.3bp. Equity markets were mixed with the S&P up 0.4% and Nasdaq down 0.2%.
European equity markets inched higher. In credit markets, European main CDS spreads were wider by 1.3bp and crossover spreads widened by 6.4bp. Eurozone inflation tumbled more than expected for a third straight month in November, with CPI rising 2.4% from a year ago in November. This was down from 2.9% the previous month and less than the estimates of 2.7%. Core CPI YoY dipped to 3.6% from 4.2% and below estimates of 3.9% after a drop in services prices. Asian equity markets have opened weaker today. Asia ex-Japan IG CDS spreads were wider by 1.3bp.
Personal Consumption Expenditures (PCE) is an inflation metric measuring consumer spending on goods and services, released by the US Department of Commerce. The Fed’s preferred measure of inflation is the Core PCE – this refers to the Headline PCE after stripping out two volatile components, namely, food and energy.
The US also publishes another inflation metric, the CPI (Consumer Price Inflation), a key inflation indicator. CPI and PCE differ on four fronts: formula, weight, scope and other factors. As per the BLS, “CPI sources data from consumers, while PCE sources from businesses. The scope effect is a result of the different types of expenditures CPI and PCE track…CPI only tracks out-of-pocket consumer medical expenditures, but PCE also tracks expenditures made for consumers, thus including employer contributions. The implications of these differences are considerable.”
On Rates in ‘Very Good Place,’ Not Considering Cuts – Fed’s Daly
“Policy is in a very good place. We have raised the key interest rate significantly. We don’t need an insurance mentality now, where we hedge against rising inflation. We should simply be patient and remain vigilant… I’m not thinking about rate cuts at all right now… Our inflation data are improving and our real economy has not stalled”
On Fed Officials Shift Tone But Remain Wary of Markets’ Aggressive Rate Cut Bets
Diane Swonk, chief economist at KPMG
“The mantra will soon shift from higher for longer to higher for long enough… Inflation has come down more rapidly than they expected”
Yelena Shulyatyeva, senior US economist at BNP Paribas
“The expectations for Chair Powell to opine on rate cuts have clearly risen in light of the recent comments. He may not go as far as to firmly validate a new dovish tone”
Kathy Jones, Charles Schwab’s chief fixed income strategist
Don’t see Powell opening the door to rate cuts in the first quarter… will probably try to avoid providing any kind of time frame
On Market pushback on central banks’ rates view just got louder
Nate Thooft, global CIO for multi-asset solutions at Manulife Investment
“Is the Fed going to pivot from their hawkish statements that they are adamantly focused on inflation and need to kill it?”
Chris Jeffery, head of rates and inflation strategy at LGIM
“There are now committee members in all three (banks) willing to talk about rate cuts next year”