ON DECK FOR MONDAY, FEBRUARY 5
KEY POINTS:
- Markets extend post-payrolls reaction
- Powell’s stale interview merely reinforced pre-payrolls guidance
- Will US ISM-services repeat January’s post-payrolls surprise?
- Will SLOS explain why the FOMC dropped reference to tighter credit?
- Canada will update wage settlements today
- Canada extended its xenophobic, scapegoating ban on foreign home buyers
- Light Fed-speak
- Global Week Ahead reminder here
Markets are extending Friday’s post-payrolls effects. US Ts are bear flattening with 2s about 7bps cheaper for a cumulative 20bps repricing to pre-payrolls. May FOMC cut pricing continues to be scaled back by an extra few bps this morning and by a cumulative 13bps post-payrolls; Q1 GDP arrives 6 days before the May 1st decision so if GDP tracking continues to be very strong then it would make for awkward optics to a) cut in May, or b) set up a June cut at the May meeting.
EGBs and gilts are selling off by a little less than the US. The dollar is broadly stronger. Equities are a little lower across NA futures and mixed in Europe. Asia-Pacific markets took down the new information for the first time with Chinese stocks falling by 1% (Shanghai, SOE-dominated) to 4% (Shenzhen) as pushed out Fed cuts tie the PBOC’s hands somewhat via the yuan. Asia-Pacific bonds are generally underperforming.
Fed Chair Powell’s CBS interview (full transcript here) was stale on arrival last night and offered nothing new. It was stale because it was pre-recorded the day before Friday’s blockbuster payrolls and wages report including revisions that poured cold water on Powell’s narrative that the labour market is coming back into balance (recap here). Powell reiterated that a cut by March is unlikely, warned against easing too soon, and said that FOMC forecasts for easing probability hadn’t materially changed since the December ‘dot plot.’
The US will release the January edition of the ISM-services report. Most expect improvement but ISM can surprise and that could be material to markets this morning. Recall the market reaction back on January 5th when payrolls were stronger than consensus expectations, but then ISM landed 90 minutes later and drove US front-end yields lower. The context is different today given the magnitude of the payrolls beat and the directness of Fed-speak against nearer term easing that have combined to push out Fed pricing.
The Fed’s Senior Loan Officer Opinion Survey will be released this afternoon (2pmET) and will further update credit conditions. The last update was in October and hence toward the peak of the bond market sell off. Did it improve and offer justification for dropping reference in the FOMC statement to ‘tighter financial and credit conditions for households and businesses”?
Canada will update wage settlements and the numbers are expected to be strong (time TBD). Canada will also update little-watched PMIs for January (9:30amET)
Canada extended its ban on buyers of Canadian home by two years to January 2027 in an announcement made by FinMin Freeland yesterday. It’s a purely xenophobic measure aimed at politically scapegoating foreign buyers that were an immaterial share of home purchases. It is designed to politically blame foreign buyers for what is instead the total mismanagement of Canadian housing and immigration policy. Besides, ultra loose immigration policy including abuse of the temporary category particularly via international students resulted in finding other ways of funnelling money from outside of Canada into local housing.
There will also be light Fed-speak from Chicago’s Goolsbee (10amET) and Atlanta’s Bostic (2pmET).
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This report has been prepared by Scotiabank Economics as a resource for the clients of Scotiabank. Opinions, estimates and projections contained herein are our own as of the date hereof and are subject to change without notice. The information and opinions contained herein have been compiled or arrived at from sources believed reliable but no representation or warranty, express or implied, is made as to their accuracy or completeness. Neither Scotiabank nor any of its officers, directors, partners, employees or affiliates accepts any liability whatsoever for any direct or consequential loss arising from any use of this report or its contents.
These reports are provided to you for informational purposes only. This report is not, and is not constructed as, an offer to sell or solicitation of any offer to buy any financial instrument, nor shall this report be construed as an opinion as to whether you should enter into any swap or trading strategy involving a swap or any other transaction. The information contained in this report is not intended to be, and does not constitute, a recommendation of a swap or trading strategy involving a swap within the meaning of U.S. Commodity Futures Trading Commission Regulation 23.434 and Appendix A thereto. This material is not intended to be individually tailored to your needs or characteristics and should not be viewed as a “call to action” or suggestion that you enter into a swap or trading strategy involving a swap or any other transaction. Scotiabank may engage in transactions in a manner inconsistent with the views discussed this report and may have positions, or be in the process of acquiring or disposing of positions, referred to in this report.
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Scotiabank, together with “Global Banking and Markets”, is a marketing name for the global corporate and investment banking and capital markets businesses of The Bank of Nova Scotia and certain of its affiliates in the countries where they operate, including; Scotiabank Europe plc; Scotiabank (Ireland) Designated Activity Company; Scotiabank Inverlat S.A., Institución de Banca Múltiple, Grupo Financiero Scotiabank Inverlat, Scotia Inverlat Casa de Bolsa, S.A. de C.V., Grupo Financiero Scotiabank Inverlat, Scotia Inverlat Derivados S.A. de C.V. – all members of the Scotiabank group and authorized users of the Scotiabank mark. The Bank of Nova Scotia is incorporated in Canada with limited liability and is authorised and regulated by the Office of the Superintendent of Financial Institutions Canada. The Bank of Nova Scotia is authorized by the UK Prudential Regulation Authority and is subject to regulation by the UK Financial Conduct Authority and limited regulation by the UK Prudential Regulation Authority. Details about the extent of The Bank of Nova Scotia's regulation by the UK Prudential Regulation Authority are available from us on request. Scotiabank Europe plc is authorized by the UK Prudential Regulation Authority and regulated by the UK Financial Conduct Authority and the UK Prudential Regulation Authority.
Scotiabank Inverlat, S.A., Scotia Inverlat Casa de Bolsa, S.A. de C.V, Grupo Financiero Scotiabank Inverlat, and Scotia Inverlat Derivados, S.A. de C.V., are each authorized and regulated by the Mexican financial authorities.
Not all products and services are offered in all jurisdictions. Services described are available in jurisdictions where permitted by law.