US Market Wrap Oct 12 // FOMC minutes // PPI // Bull Flattening US2s10s

 Overnight we had the release of the US FOMC meeting minutes. 

1. Members are divided on future rate rises
2. Run up in treasury yields could substitute for a final increase
3. Focus should shift from how high to raise the policy rate to how long to hold the policy rate at restrictive levels. 

Comments from Fed's Waller echoed earlier comments from Fed officials that the recent tightening in financial conditions will do some work for the Fed. 

US PPI came in above consensus expectations but the market focused on the core PPI print which came in line with expectations at 0.20% mom with a downward revision to the prior month. 

All eyes will be on today's CPI data where consensus is for a headline reading of 3.60% yoy and Core CPI reading of 4.10%. Keep a watch on the initial jobless claims data too which has been holding surprisingly well. 

The market impact of the Israel - Hamas conflict appears to be well contained with crude now trading at USD 85.55 a barrel , down from the USD 89.00 a barrel spike on Monday. 

US2s10s bull flattened to -44 bps from a peak of -26 bps on Oct 6. In terms of Fed pricing, market is now pricing in 7.50 bps of rate hike into year end. 19 bps of rate cuts are currently priced into the May policy and 88 bps of rate cuts from peak terminal rates have been priced in 2024. Dec 2024 FFR is seen at 4.54%. Meanwhile the USD index is steadily coming off and finds support at 105.40 levels. We could see some position squaring ahead of the CPI numbers. With only 7.50 bps of rate hike priced into the Dec policy, risk reward favors going long USDs into the CPI release.