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Bond Market Insights - Tues, 19 Dec 2023

Updated: Dec 20, 2023

Fed's Goolsbee seems flabbergasted, saying that If inflation comes back into the range of the dual mandate, Fed will have "more symmetric concerns". Fed "shouldn't act" on how it thinks market will react. He is "Confused" with market reaction after the Fed meeting last Wednesday.

ECB's Kazimir was also cautious. The positive drop in inflation over the past few months is "not enough to declare victory and move to next stage" making the policy mistake of easing too early "would be more significant" than risk of staying tight for too long.

These comments and the potential impact of the Suez situation damipened interest rates, but did little to stem equities, which continued the seven week march upwards buoyed by $40bn of M&A activity.

Global shipping giants, including AP Møller-Mærsk and Trafigura, are halting Red Sea journeys due to the heightened threat of Houthi rebel attacks off the Yemen coast. Over 10 ship attacks were reported in the Bab-el-Mandeb strait, which connects the Red Sea and Gulf of Aden. The Suez Canal accounts for 30% of global container traffic. This is coupled with shipping delays through the Panama Canal and a potential US task force announcement pose challenges to global supply chains.

BOJ kept its short-term rate at -0.1% and maintained its yield curve control parameters in a unanimous decision today, hitting the yen. Forward guidance on policy was left unchanged with no specific references hinting at the prospects for a rate increase.

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