Macro Notes

In today's macro notes we discuss recent treasury borrowing estimates, housing data and tomorrow's Fed meeting along with potential implications for the Dollar.

Treasury borrowing

Treasury borrowing estimates for Q1 of 2024 (released yesterday) have come in at 760B, roughly 50B lower than previous estimates. The improvement seems to have been driven by higher income tax receipts at the federal level according to fiscal data reported by the US treasury. This is undoubtedly goods news for both the dollar and the US treasury market if it continues. I suspect the strength of the labor market and ongoing salary rises are driving income tax receipts at the federal level.

US data

Housing versus mortgage rates

US housing data released today show continued appreciation in November with the annual growth rate now at just above 6.5%, a 1 year high. All 9 of the census divisions reported positive price appreciation according to FHFA statistics.

US activity data in general has continued to come in above expectations so far this fiscal year. Hard data on consumer spending beat expectations last week and so far this week we have seen better news on both housing data and anecdotal employment indicators.

Fed and the Dollar

The Fed have an interesting task to achieve tomorrow. While inflation figures have come in as expected, recent spikes in global energy prices and shipping costs along with strong consumer spending data are creating some new pipeline inflationary pressures. Furthermore, the recent easing in financial conditions is now providing a solid tailwind to the housing market. If they are too dovish, they risk easing conditions further, possibly pushing inflation back up.

I expect Chairman Powell to strike a more restrained tone in tomorrow’s press conference which may end up disappointing FX and bond markets given the amount of rate cuts that currently have been priced into the curve.

As always, we shall keep you posted here at Purity Macro:)

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Disclaimer

The information provided in this post is for general use only and does not constitute a solicitation for investment. It should not be construed as professional financial advice. Seek independent professional consultation before making an investment decision.