TWIST: In 2011, Twist was initially intended to be b/s neutral (selling sub-3y, buying 6y+). Makes sense now if SLR relief wasn't extended in March (help lift short-end, soft-capping long-end); so would be 'technical'; or in a normalisation phase, post-tapering, perhaps
WAM-X: The Fed would merely shift the composition of its purchases further down the curve. To me, this is a 'further accommodation' tool, and a soft capping of long-end.
Today's highlights: services ISM, ADP, UK Budget. Also found Brainard/Daly very interesting yday.
First, some useless facts about ADP vs NFP of late (I'm using the first release data, FYI) ⤵️
Some useless ADP stats (since Mar'20):
* FORM: ADP > NFP in last 3
* COVID ERA: ADP > NFP 6/11 times
* ADP: ADP on avg under reported NFP by 843k in last 11; over reported by avg 64k in last 3
* NFP: When NFP > ADP, it's usually by big margin (+2.1m on avg since March)
*NOTE: I've taken the FIRST RELEASE data, not revisions, since first release data would be what traders use to compare ADP vs NFP heading into an NFP release; the revisions to the prior would be unknown, obvs - make sense?
It's a bigly week: ISMs (Mon/Wed), OPEC (Tue/Wed), EZ CPI (Tue), @HGilbert_ bday (Wed), UK Budget (Wed), Fed's Powell (Thu), China NPC (Fri), NFP (Fri).
Plus, US fiscal headlines after the House passed its $1.9tn recovery bill.
Today, ISM mfg (3pm GMT/10am EST) expected at 58.8 from 58.7. Diffusion indices like the ISM had little use at the start of the pandemic, but markets are now again putting weight in forward-looking metrics, making new orders relevant again.
ISM manufacturing 'new orders' has traditionally been used as leading indicator for both economic growth, and stock market performance.
Powell Part 2 @ 1500GMT/1000EST
Brainard @ 1530GMT/1030EST
Clarida @ 1800GMT/1300EST
Clarida encore @ 2100GMT/1600EST
In terms of 'what happened last night' ... "Fed optimism grows" or "Powell was just gloomy enough" ... you choose, but we certainly have a market! I like this from @TimDuy; the schizo approach obvs gives the Fed flexibility, and can shape its views based on incoming info.
IMHO: Powell's remarks that H2 could see a substantial pick up in spending is being overlooked. Jan retail sales + Feb cons conf are beginning to give the impression that the consumer will emerge from lockdowns with an appetite to consume (early days, obvs, lots of hurdles).
Powell Q&A (Tue) and Clarida (Wed) are my key highlights for the week. Pace of yield rise is picking up, and there is non-zero pricing for a rate hike before the end-2023 (Fed forecasts rates to remain unch through 2023)
This may prompt jawboning on WAM extensions/yield curve targeting policies. Recent minutes made no mention of these, so any discussion would signal discomfort about a) the market challenging the Fed's dovish view, and b) the speed of the move
Sequencing-wise, I always thought it would jawbone/then implement WAM-X first (would help match Tsys' own issuance WAM-X), and save YCT as the 'stick' it needs to slap the market into place if the aforementioned doesn't work.