Fed officials continue hawkish messaging

Following on from comments by Jerome Powell and Need Kashkari on Tuesday, three more Federal Reserve officials were talking up the hawkish message yesterday that rates would be higher for longer at separate events, with Kashkari repeating his messaging from the previous day as well. New York Fed President John Williams, for example, told a Wall Street Journal audience in New York that ‘We’re going to need to maintain that for a few years to make sure we get inflation to 2%.’

The Reserve Bank of India hiked its benchmark interest rate by 25bps yesterday, in line with consensus estimates, taking it to 6.5%. However, the commentary was somewhat more hawkish than anticipated, and there could yet be a further hike rather than the hold that was previously expected. The bank noted that headline inflation has indeed slowed to within its target range, but that core inflation was proving stickier.

Egyptian prime minister Moustafa Madbouly has reiterated the government’s privatisation plans, pledging to sell stakes in 32 state companies over the next year, including a share in Banque du Caire and United Bank of Egypt, and various energy companies and tourism ventures. The first will be offered by the end of March with a second batch to follow by the end of Q2. 

Today’s Economic Events and Data

• 11:00 Germany CPI inflation, January, % y/y. Forecast: 8.9%
• 17:30 US initial jobless claims, week to February 4. Forecast: 190,000
• Egypt CPI inflation, January, % y/y

Fixed Income

• US Treasuries continued to oscillate as speakers from the Federal Reserve amped up their hawkishness in comments overnight. John Williams, head of the New York Fed, said that rates needed to be “sufficiently restrictive” and that they would need to be maintained for a “few years” in order to get inflation back to 2%. Fed governor Christopher Waller also cautioned that rates would stay higher for longer than markets expect as did fellow governor Lisa Cook.
• Yields on 2yr USTs actually edged lower on the day, down by about 4bps to 4.208% while the 10yr yield fell by 6bps to 3.6098%. Sell-offs in equity markets likely helped a flight to safety and boosted USTs even as the hawkish tone continues.
• European bonds settled slightly weaker overnight with yields up across major eurozone economies. Yields on 10yr bunds added 2bps to 2.357% while in the UK, gilt yields closed flat at 3.309%.
• PIF raised USD 5.5bn in a three-tranche green bond issue after receiving more than USD 32bn of orders. PIF priced a USD 1.75bn 7yr at 115bps over USTs, a 12yr USD 2bn at +145bps over and a 30yr USD 1.75bn at +185bps.
• Emirates Islamic priced a 3yr AED 1bn sukuk 5.05%, tighter than initial guidance. The issuance follows Emirates NBD issuing the first AED bond for a UAE bank earlier in January.

FX

• Currency markets endured another day of somewhat listless trading. EURUSD settled slightly lower at 1.0712, a loss of 0.1%, while GBPUSD added about 0.2% overnight to close at 1.2072. USDJPY bumped higher by 0.3% at 131.4.
• Commodity currencies were more uniformly weaker with a gain of 0.4% in USDCAD to 1.3447, AUDUSD down 0.5% at 0.6925 and NZDUSD off by 0.3% at 0.6307.

Equities

• The UK’s FTSE 100 closed at a record high yesterday as it gained 1.6% on the day. Other European markets also saw strong gains, with the DAX gaining 1.5%, while the CAC added 0.6%. The composite STOXX 600 closed flat.
• There were losses in the US however as Fed officials continued to drive home the higher for longer narrative. The Dow Jones, the S&P 500, and the NASDAQ lost 0.6%, 1.1%, and 1.7% respectively.
• Locally, the ADX closed almost flat, up just 0.04%, while the DFM added 0.4%.

Commodities

• Oil prices extended their gains for a third day overnight with both Brent and WTI futures up by about 1.7% to USD 85.09/b and USD 78.47/b respectively. Data from the EIA showed a build in commercial crude stocks of 2.4m bbl last week along with a 5m bbl increase in gasoline stocks and about a 3m bbl build in distillates. US oil production edged up by 100k b/d to 12.3m b/d.