U.S. Indices closed with slight gains on Tuesday as they saw a slight bid into settlement but were still relatively rangebound in a day which was dominated by US and Russia high-level delegates holding a meeting in Riyadh regarding Ukraine. Following the gathering, Russia delegates gave positive remarks, highlighted by Russian Foreign Minister stating that talks were “not unsuccessful.” In wake of the readout, Ukrainian President Zelensky said his visit to Saudi Arabia has been postponed until March 10th, with sources adding that it was in order to not give legitimacy to US-Russia meeting. Overall, the Dollar was bid to the detriment of G10 FX peers with the New Zealand Dollar lagging ahead of RBNZ overnight, while the Australian Dollar pared its initial strength post-RBA. T-Notes were sold across the curve amid plethora of corporate supply ahead of this evening’s 20 Year Treasury Auction, while the crude complex was firmer, with WTI notching up greater gains than Brent on account of no settlement on Monday due to US Presidents’ Day holiday. Elsewhere, Fed Governor Waller called for rates to be on hold, while 2027 voter Daly wants more inflation progress. On the data footing, the New York Fed Manufacturing Survey returned to expansionary territory. For the record, sectors were predominantly in the green with Energy and Materials sitting at the top of the pile, while Communication Services was the clear laggard and likely weighed on by Meta’s (META) (-3%) 20-day win streak coming to an end. Stock specific highlights include Conagra Brands lowering guidance, and Intel soared amid a couple of bullish headlines, namely Broadcom (AVGO) and TSMC (TSM) reportedly considering separate deals that could split Intel (INTC), and also Silver Lake reportedly near a deal for stake in INTC’s Altera. Fed Governor Waller stated that while disinflation is expected to resume this year, the recent CPI reading was disappointing, though he suggested it may have been influenced by seasonal adjustment issues. He emphasised that seasonal effects could be distorting data, citing January retail sales as an example, which he downplayed due to the impact of cold weather. Waller maintained that rate cuts are still expected in 2025 but that it remains appropriate to keep rates on hold for now, stressing that the Fed cannot let policy uncertainty paralyse action and must remain data-driven (in January Waller refused to rule out a March cut). On inflation, Waller noted that progress has been excruciatingly slow, with the persistence of housing services inflation proving surprising. He reiterated that tariffs are expected to have a modest and non-persistent impact on prices, which the Fed should try to look through when setting policy. He also observed that market-based inflation expectations, such as TIPS, do not indicate a rise in long-term inflation risks. Waller also highlighted growing concerns among market participants over the US deficit, which he said is leading to participants demanding a term premium on 10-year yields. On the labour market, he described conditions as strong with solid growth continuing into the first quarter of 2025 but noted that most of the risks remain skewed toward higher unemployment. Lastly, he acknowledged uncertainty over whether the “last mile” of disinflation is particularly difficult or simply a result of seasonal inflation distortions. Meanwhile, the Fed’s Daly who is not a voter until 2027 stated that the US economy remains in a good place, with solid GDP growth and a resilient labour market. While inflation is gradually coming down, the process has been bumpy and is taking longer than desired. However, she sees no reason to be discouraged about progress. Daly emphasised that policy remains restrictive and should stay that way until there is clear and sustained progress on inflation. She stressed the importance of being careful before making the next adjustment to ensure enough pressure remains on inflation while also avoiding actions that could “shortchange” the labour market. She reiterated that the Fed does not need to rush decisions and wants to gather more information before making any moves to avoid policy missteps. On risks, Daly acknowledged uncertainty regarding the scope, magnitude, and timing of new administration policies. She also noted that the California wildfires could impact insurance markets and potentially have longer-term economic consequences. Despite these uncertainties, she maintained that policy is in a very good place and that the Fed remains well-positioned to act when needed. Elsewhere, Oil closed higher by 1.5% while Gold ended Tuesday’s session with a 1.2% gain.
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