Rate Hike Re-Think?

Is that a head-&-shoulder formation on the 10-year yield? If so, then will we see 1.45%. Could that occur from a mixed or disappointing US jobs report? Falling yields globally on Thursday reflected a market that's listening to global central bankers preaching that inflation will be fade later. The moves tightened global rate differentials and boosted the  yen while the pound plunged on the BoE surprise. Non-farm payrolls are due up next. EURGBP Premium long is in the green.

Treasury yields fell 6-8 bps at the front end of the curve in the US and 20 basis points in the UK as the market reconsiders the hawkish path of rate hikes that was priced in. That comes after a pushback from both Bailey and Powell.

Bailey argued that the path of rates priced into the UK rates market would push inflation below target at the far end of the projection range. He also attempted to defend the confused signals put out from himself and other BOE members regarding rate hikes.

The GBP market wasn't having it and the pound sank 180 pips against the dollar and 250 versus the yen.

The moves are a reminder that the transitory debate isn't going away soon. Bailey and Powell both highlighted that inflation was in goods and likely due to bottlenecks. They also both argued that the longer prices stay high, the more likely they are to see second-round effects like wage hikes.

Both also cited the jobs market as a key spot to watch. In the US, that shifts attention to Friday's non-farm payrolls report, which is expected to show a rebound to 425K versus 194K in September. One particular spot to watch is labor force participation which is forecast flat at 61.6%. Powell spoke at length about factors that could be keeping it depressed. How it develops with special benefits now gone – especially among prime age workers -- will be a key input for the Fed.