Dovish remarks by a leading member of the Fed yesterday contributed to a notable fall in US bond yields and a further decline in the dollar, which has weakened to $1.10 to the euro and to $1.27 to sterling, its lowest levels since early and late August respectively. The euro is a touch softer against the pound, trading at around 86.5p this morning.
US 2-year yields fell by the best part of 15bps yesterday, while 10-year yields ended almost 10bps lower. Equivalent German and UK yields also fell, although the declines were smaller, while yields generally are edging down further this morning. Meanwhile, equity markets in the US recovered from early losses to close slightly higher on the day but European stocks end marginally in the red.
Fed Governor Waller says he’s “increasingly confident that (monetary) policy is currently well positioned to slow the economy and get inflation back to 2 per cent.” He also cited the possibility of lower interest rates ahead, saying if inflation “continues to fall for several more months…three, four, five months…you could then start lowering the policy rate just because inflation’s lower.”
Bank of England MPC member Haskel (in contrast to Waller’s remarks) says “the still-high degree of labour market tightness (in the UK) continues to impart inflationary pressure,” which means interest rates will have to be “held higher and for longer than many seem to be expecting.” Haskel dissented at the last MPC meeting, voting to hike rates by 25bps.
Ahead of a flash reading for November inflation in the Euro area tomorrow, data released earlier this morning showed headline inflation in Spain fell to 3.2% this month from 3.5% in October, with core inflation also easing. The consensus expects inflation in the zone to fall further to 2.7% this month from 2.9% last month.
The Day Ahead
Economic data due today include the Economic Sentiment Indicator for the Euro area and mortgage approvals and consumer credit in the UK. We also get a second estimate of Q3 GDP in the US, while the Fed publishes its latest Beige Book which will provide anecdotal evidence of how the economy has performed since the end of Q3. The OECD presents its latest Economic Outlook as well today.