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Bond Market Insights - Wed, 31 Jan 2023

DJIA +0.35% / S&P -0.1% / CCMP -0.8% / CRUDE +1.4% $77.82 / GOLD +0.2% $2,037 / VIX -2.1% $13.3. Earnings outcome weigh on Nasdaq, GOOG -1.2% Rev & PAT miss / MFST -0.3% Rev beat, Cloud growth disappoints. FED announces latest decision on interest rates tomorrow morning. Saudi Arabia orders Aramco to lower oil capacity below target announced in 2020.  

US Treasuries started strong, riding on the wave of the limited refinancing announcement, but  was hit sharply lower and flattened after stronger than expected JOLTs job openings data. Dec JOLTs data showed job openings jumped to 9.026m vs 8.75m expectations, with an upward revision of +135k to last month’s numbers. Job openings at 5.4%, quits at 2.2% and layoff rates at 1.0%, all unchanged while the ratio of jobs to job seekers edged higher to 1.46.

Front-end led the move lower with 2yr yields jumping 10bps to hit 4.385%. Flattening trades in the futures pit helped 2s10s trade through -31bps for the first time since the CPI data on Jan 11. Swap spreads reversed the widening move seen on Monday after the borrowing announcement as the prospect for reduced T-Bill issuance which could slow RRP drawdown and push back the timing of QT tapering.

What’s priced in? Probabilities of a March cut fell to ~30%; Dec 24 rate jumped to 4.04% which implies less than 130bps of rate cuts this year.

The FOMC is expected to hold at a Fed funds upper limit of 5.5%. Fedwatchers will be checking whether they eliminate or tweak the term “any” further rate hike(s). Since the last meeting we have seen stronger than expected growth, strong payrolls and wages, rising shipping costs globally, so the rhetoric should not change. Even so all eyes on Powell's press conference.

Today Australia CPI has just been released and is quite benign. Dec consumer prices up 3.4% vs expectations of 3.7%, Q4 was up 0.6 vs expectations +0.8%. China releases state PMI’s. Some are questioning whether the recent offer of stimulus indicates that these numbers will disappoint.

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