The USD started the US session mixed. However, yields started to correct some of the rise from the last 3 trading days which saw the 10-year yield move from a low on February 1 at 3.817% to the high from yesterday extending to 4.177. The high fell short of the 2024 high at 4.196%. The yield today moved down to a low of 4.079% after the US treasury was successful in its first coupon auction of the week - the 3 year note. That auction had a negative tail of -0.8 basis points and had strong international demand. The US treasury will auction off 10 and 30 year notes/bonds tomorrow and Thursday. Those may be harder to place, but so far, so good. The 10-year yield has support at the 200 hour MA on the chart below at 4.0576% (green line on the chart below). On Monday, the yield gapped above that MA, and retested it, before moving higher (see green line on the chart below).

10 year yield
US 10 year yield is above 200 hour MA

For the day, the AUD is ending the day as the strongest of the major currencies. The USD is ending the day as the weakest after the yield declines. The AUD got its start higher in the Asian Pacific session last night after the RBA kept rates unchanged but kept the door open for additional hike(s) if warranted. That helped to push the AUD higher and it maintained its gains in the US session.

The strongest to the weakest of the major currencies..

There was some additional Fed talk today which fell into line with the Chair Powell talking points.

Cleveland Fed President and FOMC voting member Loretta Mester spoke today and provided her insights into the current state and future expectations of monetary policy. Mester believes that monetary policy is well-positioned to evaluate the next steps for interest rates. She indicated the possibility of reducing rates later this year if the economy evolves as anticipated, though any rate cuts would likely occur at a gradual pace. Mester emphasized that a sustained decrease in inflation is necessary before considering rate reductions, aiming to return to a 2% inflation rate over time. She expects economic growth and employment to moderate this year and highlighted the need to be vigilant about a faster-than-expected cooling of the labor market.

Mester described recent inflation trends as encouraging but noted the risk that inflation could prove more persistent. She pointed out that wage gains remain higher than what would be conducive for achieving a 2% inflation rate, though higher productivity levels could alter the relationship between wages and inflation. Despite the potential for rate cuts later this year, Mester stressed the importance of gathering more data before making decisions on rates. She also suggested that the Fed should keep open the option of asset sales for managing the balance sheet and expects the pace of balance sheet reduction to slow before halting. Overall, Mester's comments reflect a cautious approach to monetary policy, focusing on achieving sustainable inflation targets while monitoring economic indicators closely.

Minneapolis Fed President Neel Kashkari, a non-voting member in 2024, also shared his views on the current economic landscape, emphasizing the rapid decline in inflation and the strength of the labor market, which he describes as a 'conundrum'. Kashkari does not anticipate a recession as his base case. While year-over-year inflation data has yet to align fully with expectations, Kashkari notes that the three-month and six-month data are nearly on target, suggesting that the fight against inflation is not over, but the trends are positive.

Kashkari attributes most disinflationary progress to supply-side improvements, arguing that the yield curve is an unreliable recession predictor in this context, given the unique causes of disinflation. Kashkari expresses optimism regarding the dollar's strength, attributing its long-term value to economic competitiveness. Additionally, he observes that household savings are depleting more slowly than anticipated, and although delinquencies are rising, they do so from very low levels, indicating a nuanced economic situation that balances positive developments with areas of concern

In Canada today, the Bank of Canada Governor Tiff Macklem also spoke today and stated that more time is needed for monetary policy to alleviate remaining price pressures in the economy. He noted that current policies have effectively moderated demand, rebalanced the economy, and lowered inflation, with shelter price inflation now being the largest contributor to above-target inflation. Despite a modest decline in house prices due to supply shortages and an influx of newcomers, housing affordability remains a significant issue that monetary policy alone cannot resolve. Macklem emphasized the need for patience to further reduce inflation, highlighting the impact of global volatility on Canadian inflation. The policy interest rate is set at 5%, considered necessary to diminish inflationary pressures. The focus shifts from the restrictiveness of monetary policy to the duration of its current stance, aiming for a sustained decrease in inflationary pressures, especially in underlying inflation. Although the Bank of Canada targets overall CPI inflation, it acknowledges the importance of shelter costs. Macklem suggested that the neutral interest rate might slightly exceed the 2% to 3% range, with expectations of a modest increase in housing prices this year, amidst significant uncertainty regarding future housing market trends.

Canada building permits fell sharply, but it is not unusual to get a wild number and often snaps back the next month. The Canada Ivey PMI came in near expectations with little immediate reaction to both although the USDCAD did fall to retest the 200-day MA at 1.3478 after highs seen over the last few days could not materially extend above the early January highs (see chart below).

USDCAD breaks lower but the fall stalls near the 200D MA

The GBPUSD also corrected higher (lower USD) after it tested its 38.2% of the move up from the October low. The corrective move higher reached by up to the 1.26000 level which was the 1 1/2 month low floor until yesterday. If the sellers mean business, they will put a lid on the correction at the 1.2600 level into the new day. A move above and I have to think the sellers on the break outside the "red box" will be very disappointed.

GBPUSD bounced near 38.2%. Stay below 1.2600 area is key.

US yields are down on the day:

  • 2-year yield 4.407%, -6.4 basis points
  • 5-year yield 4.047% -7.5 basis points
  • 10 year yield 4.101% -6.2 basis points
  • 30-year yield 4.303% -4.3 basis points

in the US stock market, the major US stock indices snatched victory from the jaws of defeat - especially in the S&P and NASDAQ indices. At session lows, the S&P was down -7.94 points. It is closing up 11.42 points. The NASDAQ index made a bigger comeback after being down -83.43 points and closed up 11.31 points on day.

The final numbers are showing:

  • Dow Industrial Average Rose 141.22 points or 0.37% at 38521.37
  • S&P index rose 11.42 points for 0.22% at 4954.24
  • NASDAQ index rose 11.31 points or 0.07% at 15608.99

Thank you for your support. Have a great night, morning, day.