Meditate!!
The February ISM Manufacturing Index came in at 47.70 (prev
47.4). The reading reflected contraction in manufacturing activity for the 4th
straight month. However, what stood out in the report was the sharp increase in
the Prices Index which jumped to 51.3 from 44.5 and the new orders index rose
to 47.0 (prev 42.50). The activity contracted at a slower pace amid a backdrop
of rising prices which adds to fears around Fed tightening.
Comments from FOMC voting member Neel Kashkari also pushed rates higher. “We’re
not yet seeing much of a sign of our interest-rate increases slowing down the
services sector of the economy and that is concerning to me,” he said. “Wage
growth is at a level that it actually is too high to be consistent with our” 2%
inflation target. He also said that if the Fed declares "victory too soon,
there will be a flood of exuberance" and it will need to do even more work
that if the Fed declares "victory too soon, there will be a flood of
exuberance" and it will need to do even more work.
Fed fund futures continue to price in higher rates with terminal rate of 5.4850% in September rather than earlier July peak and year end pricing at 5.37%. Dec 23 pricing has shifted around 100 bps.
On the domestic front, INR rates moved higher in line with global rates:
2Y OIS 6.77% (prev 6.72%)
5Y OIS 6.68% (prev 6.62%)
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