US Rates: Should we talk about the weather?
At a Glance
The desk anticipates a cautious yet upward trajectory for US rates following the recent FOMC meeting, as discussed by J.P. Morgan's Jay Barry and Phoebe White. They emphasize the importance of upcoming economic indicators and the February refunding announcement as potential catalysts for market movement. Per the full note, the current economic landscape suggests a modest tightening bias, with inflationary pressures remaining a key focus. This aligns with our consensus target of 1.075, reflecting a nuanced view amidst varying expectations across the market.
Key Takeaways
- 01JPMorgan flags weather distortions as a factor in interpreting US economic data post-FOMC.
- 02The February refunding announcement is a key event for rates markets.
- 03Focus on underlying trends rather than noisy data points.
Full Analysis
What the desk is arguing
Jay Barry and Phoebe White of JPMorgan argue that the FOMC's recent stance and the upcoming refunding announcement are key for US rates, but they caution that weather effects may distort near-term data, urging a focus on underlying trends.
Where it sits in our coverage
We have no internal coverage on US rates or the specific currencies mentioned. Our consensus targets and spreads are not available for this topic.
How other firms see it
No other firms are cited in the source material.
Market Implications
The podcast implies that market participants should expect volatility around data releases and the refunding announcement, with potential for rates to trade within a range as the market digests seasonal distortions.
From the original
Jay Barry and Phoebe White discuss the outlook for US rates in the wake of the FOMC meeting and preview the February refunding announcement. Speakers: Jay Barry - Head of Global Rates Strategy Phoebe White - Head of US Inflation Strategy This podcast was recorded on 29 January 20
Related speeches
4 itemsUS Rates - I won’t see you next time
The desk anticipates a continued upward bias in Treasury yields, driven by a shift in Fed sentiment and geopolitical tensions. Per the full note from J.P. Morgan, the recent FOMC meeting revealed a split among committee members, indicating a potential pivot towards rate hikes rather than cuts, with a growing consensus on inflation concerns. This shift has been reflected in the market, where the implied distribution for future rate moves has notably changed, suggesting a more balanced outlook between hikes and cuts. The upcoming Treasury Quarterly Refunding Announcement on May 6 could further influence market dynamics, particularly in the context of rising fiscal deficits and changing supply conditions.
Global Rates – And now my fears, they come to me in threes
The desk believes that the recent U.S. employment data reflects a stabilized labor market, which may limit the Federal Reserve's policy adjustments in the near term. Per the full note from J.P. Morgan, while the April payrolls report was mixed, it indicates a firming in employment growth, suggesting that the Fed is likely to maintain its current stance. With the market pricing in a flat to modestly upward sloped money market curve, the implications for dollar strength appear muted. This perspective aligns with our consensus target of 1.075 for the EUR/USD pair, as we anticipate limited catalysts for significant movement in the immediate future.
Global FX: US data, DM central banks, year-end observations
The desk anticipates that the USD will remain resilient against major currencies in the near term, driven by robust US economic data and a cautious stance from developed market (DM) central banks. Per the full note from J.P. Morgan, the recent US data releases have shown stronger-than-expected consumer spending and employment figures, which bolster the case for a sustained USD strength. Additionally, the commentary highlights that DM central banks are likely to maintain their current policies, which could limit any aggressive moves against the dollar. As we approach year-end, positioning shifts and liquidity considerations will also play a crucial role in FX dynamics.
At Any Rate: Of funding and refundings
Lead — The desk's thesis centers on the implications of recent developments in money markets for the Federal Reserve's quantitative tightening (QT) process, particularly as it relates to the upcoming November refunding. Per the full note from J.P. Morgan, the current dynamics in funding markets suggest that the Fed may need to reassess its QT strategy to maintain liquidity. This is underscored by the recent uptick in short-term rates, which could impact the overall effectiveness of the Fed's tightening measures.
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