Equities rose and Treasury yields fell after comments from Fed officials bolstered speculation the central bank is heading toward another pause in interest rate hikes. Oil edged lower, following its biggest rally since April.
At the time of this writing, Fed swaps currently show about a 60% chance the Fed will remain on hold in December. Less than one week ago, the odds were 60% of an additional hike.
The 10-year Treasury declined in yield by 18 basis points on this change of sentiment.
The PPI is released at 8:30. Analysts are expecting a 0.3% increase in the headline number, 0.2% core This data can potentially validate yesterday’s view that the Fed will pause for the remainder of the year.
Approximately 33%-34% of the nation’s $34 trillion debt must be rolled over in the next 12 months. Bloomberg is reporting the “Treasury’s barrage of issuance is starting to cause some cracks to appear in the funding markets.”
The question at hand is at what price this debt will be placed. The largest buyer of Treasury debt (US Federal Reserve) is now selling via quantitative tightening at a pace of $60 billion a month. Other central banks are neutral at best. Can pensions and insurance companies provide the funding?
As inferred, it is universally accepted the debt will be placed, the auctions will not fail but the price is the overhanging question.
Late yesterday afternoon, legendary hedge fund investor Paul Tudor Jones commented “the current geo-political environment is the most threating and challenging he ‘s ever seen” in the wake of Hamas’s attack on Israel. He further commented about a natural gas pipeline leak in the Baltic Sea has placed Finland on high alert as it is believed it was caused by a deliberate act of destruction.
As noted markets are sanguine about the geopolitical events, believing that they are only one off events even as the US is positioning another carrier group off of the Israeli coast to deter further escalation of the war that may involve Hezbollah.
Last night the foreign markets were mixed. London was up 0.08%, Paris down 0.54%, and Frankfurt up 0.03%. China was up 0.12%, Japan up 0.60% and Hang Seng up 1.29%.
Futures are marginally higher ahead of the PPI. The narrative is rising that an escalation of the Middle East conflict may spiral into a broader regional war with implications for oil supplies and general Middle Eastern relations. Oil, however, is down about 0.1%, perhaps under the belief that demand destruction may occur if the global economies slow. The 10-year is up 23/32 to yield 4.59%.
