Post Powell Thoughts - Lindsay Matchampdf
Post Powell Thoughts - Lindsay Matchampdf
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  1. Post Powell ThoughtsFICC and Equities|2 May 2024 | 10:16AM UTCFOMC was bullish risk assets in my opinion for 3 reasons:1) Dovish Powell Pushes Back Against HikesDespite the recent hot data Powell mentioned upcoming disinflation noting“that he did not see signs of reheating and that inflation expectations remain anchored; emphasized the “lag structures built into the inflation process”; expressed confidence that a decline in housing and continued supply-side healing would deliver further disinflationary dividends; and forecast that (sequential) inflation will move back down this year.”He also talked about the softness of the labor market and effectively killed hikes. This despite core PCE at roughly 3% and consistently strong jobs prints.Our takehere.2) QT Tapering Despite RRP DrainageThe dovishness doesn’t stop there though;“The FOMC announced that it will start slowing the pace of balance sheet runoff in June. The monthly cap on Treasury runoff will be reduced from $60bn to $25bn. The Committee again noted that “inflation has eased over the past year”They have effectively halved the pace of QThereand this despite QT sterilization due to the draining of the RRP we have seen.Our takehere3) T-Bill Issuance : Duration FriendlyIn addition although Yellen announced a September TGA of $850bn so only a small drain from today’s $940bn level (graph below) there were no surprises on issuancehere“Going forward, we continue to expect Treasury to maintain the current nominal coupon auction sizes for some time and slightly raise TIPS auction sizes over time in line with previous guidance, while managing any variation in financing needsvia bills issuance.”T-Bill issuance is a lot easier for the market to digest than long end bonds; more liquidity can go into risk assets when not being used up in order to absorb long end issuance.
  2. Our takehereSo we have strong growth and a FED/Treasury willing to use its tools to support the economy which is bullish risk assets IMO.Some macro charts:The RRP has been drained which has sterilized recent QT:Sources for charts: Bloomberg as of02/05/2024; past performance is not indicative of future results.FED balance sheet reduction as a result of QT set to slow which is bullish:
  3. Sources for charts: Bloomberg as of02/05/2024; past performance is not indicative of future results.Yellen announced a September TGA of $850bn so only a small drain from today’s $940bn but issuance was positive:
  4. Sources for charts: Bloomberg as of02/05/2024; past performance is not indicative of future results.Good luck.Many thanksLindsay MatchamFutures Sales Trading
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