HALISTER1: RESEARCH ROUNDUP: FOMC’s Dots to Fall, Point to 1 Hike by Yr-End

RESEARCH ROUNDUP: FOMC’s Dots to Fall, Point to 1 Hike by Yr-End

(Bloomberg) -- FOMC seen as keeping rates unchanged on Sept. 21 for 6th straight meeting and suggesting one rate increase by year-end, with median dots through 2018 likely to drop, based on published research from economists and strategists.
  • Most expect a December move, with Barclays holding out for a hike this week
  • Market-implied probabilities stand at ~20% and ~27% for FOMC’s September and November meetings and above 50% for December; fed funds futures not fully pricing next rate increase until mid-2017
  • Barclays (Michael Gapen, Rob Martin, Blerina Uruci)
    • Fed to hike this week, yet it’s “close call;” case for action isn’t “iron clad”
    • Worries about inflation, unwillingness to “buck” mkt pricing could lead FOMC to pause in favor of a “strong” signal of hike by yr-end
    • Outlook has evolved in way that “clears” FOMC’s threshold for action
    • FOMC will have to ignore mkt pricing no matter when it moves
    • MORE
  • BofAML (Michelle Meyer, Ian Gordon, Mark Cabana)
    • Fed to skip rate increase this week and give “cautiously upbeat assessment,” which should lead to modestly higher front-end/real rates and mildly support USD
    • Yellen likely to make case for hike by yr-end during her press conference, with emphasis on need to see continued data improvement
    • Median dot will move down to 0.625% from 0.875% in June; BofAML still expects 3 hikes in 2017 and 2018, bringing median forecasts to 1.375% and 2.125% respectively
    • MORE
  • Citi (Jabaz Mathai, Steve Kang, Jason Williams)
    • Expectations for a rate hike “extinguished effectively” by Fed Gov. Lael Brainard in recent speech; FOMC will pass on rate action this wk
    • Outright long position in FFV6 is a trade that can be justified; second trade is to pair long FFV6 with short FFF7
  • Deutsche Bank (researchers, economists led by Dominic Konstam and Joseph LaVorgna)
    • Statement may be “relatively hawkish,” despite rates remaining unchanged, if policy makers are determined to act by yr-end
    • Only minor adjustments seen to estimates for GDP, employment and inflation; shallower projected path for fed funds rate would be consistent with recent Fed commentary
    • Fed’s “hawkish hold” for September, along with potential for BOJ move on short rates and shift in QE, might be consistent with a steeper curve
  • JPMorgan (Mika Inkinen, Antoine Gaveau)
    • “Little reason” to change view that FOMC will remain on hold in September, hike in December
    • Modest changes seen in statement to reflect that risks to outlook have diminished or are nearly balanced
    • “Would not be surprised” to see at least one FOMC member expecting no hikes this yr, given Brainard’s recent remarks; more than 4 members expecting no hike “would pose some risks to our December call”
  • Renaissance Macro Research (Neil Dutta)
    • BOJ’s Sept. 21 policy decision is “source of uncertainty” for Fed; main issue is extent to which BOJ is willing to commit to its 2% inflation objective
    • BOJ “disappointment” and balanced Fed risk assessment would likely lead to “significant flight to quality” across global asset mkts
    • FOMC “highly unlikely” to hike on Wed., likely to move once by yr-end; little to warrant “meaningful” reassessment of current economic conditions in 1st paragraph of statement
  • UBS (Drew Matus, Samuel Coffin, Dave Liang)
    • FOMC to keep rates unchanged on Sept. 21 and reduce number of 2016 hikes in dots to just 1, mitigating impact of a hawkish statement; should also point to move in December
    • Projected path of rates in 2017 and 2018 should move lower, to 1.375% and 2.125% respectively; UBS still expects 2 more hikes in 2017
    • MORE
  • Wrightson ICAP (Lou Crandall)
    • Fed’s window of opportunity to hike is already closed
    • Ambiguity in near-term direction of data makes this a “ticklish” time to announce a hike
    • Will be hard for FOMC to be “overly hawkish” since statement will need to explain why policy makers aren’t hiking this month
    • Statement could be “neutral,” with Yellen delivering “close but not quite there yet” message
    • MORE
Alert: HALISTER1
Source: BFW (Bloomberg First Word)

People
Antoine Gaveau (JPMorgan Chase & Co)
Blerina Uruci (Barclays PLC)
David Liang (UBS Securities LLC)
Dominic Konstam (Deutsche Bank AG)
Drew Matus (UBS Asset Management Japan Ltd)

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UUID: 7947283

HALISTER1: Brazil Market Optimism Dependent on Reforms, Inflation: Analysts

Brazil Market Optimism Dependent on Reforms, Inflation: Analysts

(Bloomberg) -- Optimism about Brazil’s FX and swap markets is reliant on the approval of economic reforms and inflation slowing down, aside from external factors, analysts say.
  • Reforms are important to boost market confidence on debt solvency and also to open room for BCB to cut rates, Roberto Padovani, economist at Banco Votorantim, says in a phone interview
    • While bets on growth recovery near a consensus for 2017, doubts have arisen over the pace as country’s credit hardship risks limiting improving confidence
  • “Brazil’s economy is edging toward recovery, but high inflation remains an impediment to stronger growth,” Bill Adams, senior international economist at PNC Finl Services Group, wrote in a note
    • Inflation erodes consumer spending power and prevents BCB from cutting rates
    • While local factors are relevant, Brazil assets such as BRL became more dependent on external scenario after 1st-half recovery, when they caught up with other EM markets previous performance, Padovani says
Alert: HALISTER1
Source: BFW (Bloomberg First Word)

People
Roberto Padovani (Banco Votorantim SA)
Bill Adams (PNC Financial Services Group Inc/The)

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UUID: 7947283

HALISTER1: Fed’s Window of Opportunity to Hike Is Already Closed: Wrightson

Fed’s Window of Opportunity to Hike Is Already Closed: Wrightson

(Bloomberg) -- “The window of opportunity for a Fed rate hike has closed before the FOMC has a chance to meet, again,” Wrightson ICAP economist Lou Crandall writes in note.
  • “No doubt” that Yellen will say at her press conference that Fed expects to tighten over time; yet hard for Fed to be “overly hawkish” since Sept. statement will need to explain why policy makers aren’t hiking this week
    • FOMC may decide statement should remain neutral, leave it to Yellen to deliver “close but not quite there yet” message
  • While a “comfortable” majority on FOMC probably sees justification in at least a qtr-pt move at this point, ambiguity in near-term direction of economic data makes this a “ticklish” time to announce a hike
    • Fed would take a “reputational hit” if economic data remain ambiguous next month
  • Dots will likely continue to show almost all FOMC members favoring at least one hike in 2016, along with slightly shallower tightening trajectory in 2017 and additional downward drift in estimates of long-run neutral rate
  • FOMC’s forecasting record has become a “sore point for many”; tightening in middle of what turned out to be a “soft” spell of data “would not be helpful to the institution”
  • A Nov. hike “is not very plausible”; in absence of “extreme data outcome,” Fed should “keep its head down” in wk before a presidential election
Alert: HALISTER1
Source: BFW (Bloomberg First Word)

People
Louis Crandall (Wrightson ICAP LLC)

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UUID: 7947283

HALISTER1: Bund 10Y Falters at -2bp Hurdle, Seen Line-in-Sand for Market

Bund 10Y Falters at -2bp Hurdle, Seen Line-in-Sand for Market

(Bloomberg) -- Bund 10-yr rate finds renewed selling pressure against -2bps resistance which keeps intact the near-term prospects of a deeper retracement toward 16bps (200-DMA), Bloomberg technical analyst Sejul Gokal writes.
  • See chart here
  • -0.024% represents the 50% retracement of Sept. 7-14 selloff in bunds; level is also the mid-Aug. breakdown point
    • Bears given extra impetus as bund corrective unwind from mid-last week fails at the previous breakdown point and contained by the 100-DMA line at -2bps
  • Interim supports at 8bps and 12bps (Sept. 14 and June 23 high)
  • NOTE: Sejul Gokal is an technical strategist who writes for Bloomberg. The observations he makes are his own and are not intended as investment advice.
Alert: HALISTER1
Source: BFW (Bloomberg First Word)

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UUID: 7947283

HALISTER1: FOMC to Hike Once This Yr in Dec., Offset Hawkish Statement: UBS

FOMC to Hike Once This Yr in Dec., Offset Hawkish Statement: UBS

(Bloomberg) -- FOMC to keep rates steady on Sept. 21 and reduce number of 2016 hikes in dots to just 1, mitigating impact of hawkish statement and confirming policy makers intend to move in December, UBS economists Drew Matus, Samuel Coffin and Dave Liang write.
  • Fed’s projected path of rates in 2017 and 2018 would move lower, to 1.375% and 2.125% respectively
    • UBS continues to expect 2 more hikes in 2017
  • “Most aggressive move” would be if Fed surprised mkts and hiked by 25bps on Sept. 21, while keeping central tendency forecast of 2 hikes in 2016
    • This outcome seems unlikely, given recent softening of payrolls, ISM surveys, retail sales
  • Dovish option would be to keep rates steady and eliminate any moves in 2016; scenario seems “quite unlikely” given hawkish tone of some Fed speakers
Alert: HALISTER1
Source: BFW (Bloomberg First Word)

People
Drew Matus (UBS Asset Management Japan Ltd)
Samuel Coffin (UBS Global Asset Management Japan Ltd)
David Liang (UBS Securities LLC)

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UUID: 7947283