Back to Rates Driving the Boat

Thought to ponder…

“Joy comes to us in moments—ordinary moments. We risk missing out on joy when we get too busy chasing down the extraordinary.

Brené Brown

Daring Greatly

The View from 30,000 feet

Major events last week included the ISM Purchasing Manager Survey data, that confirmed an acceleration manufacturing, employment data, that signaled a continuation of the robust employment environment that has been driving consumer spending and an escalation of hostilities in the Middle East, which adds to the compounding geopolitical tensions since Putin invaded Ukraine, with the latest moves adding an increased risk premium being built into oil prices. The net effect of strong business survey data and healthy employment reports was lower conviction that disinflationary trends of last year will be sustained, which in turn drove a reevaluation of interest rate expectations, as investors began repricing for fewer rate cuts during the remainder of the year, and even began factoring in the possibility of a rate increase into the pipeline. With a heavy week speaking engagement from Fed Presidents, when the dust settled, the lines between two groups within the Fed became clearer. One group, the majority, is in no hurry for cuts but believes disinflationary trends will persist and is leaning towards getting the rate cutting party started by mid-year. While the other group, the minority, is more skeptical that the disinflationary trends will continue and prefers to take a wait and see attitude towards rate cuts. These competing views are pressurized by the election because the Fed does not want to adjust policy immediately preceding the election for fear of being accused of interfering with the election. With the 10-year Treasury yield flirting with levels that gave the markets indigestion last fall and earning season kicking off in with the banks at weekend, the markets are nervous. Without re-enforcement of a return to disinflationary trends of 2023 the markets could be facing a showdown between dwindling rate cut expectations and the upward trend driven by strong employment and spending patterns combined with a nascent manufacturing recovery.

  • Unpacking the relationship between ISM data and PPI

  • Employment week continued to feed into Fed labor supply story

  • With the 10-year Treasury flirting with the danger zone, will the next move be about fear or acceptance of higher rates?

  • 2024 Presidential Election Update

  • Focus Point Sector Rotation Update: Unwinding of extreme upward trend signal

For additional details on the topics covered this week, please contact us at info@focuspointcap.com.

Caleb Sevian