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Morning Report: Bonds rally on another pause from the Fed.


Vital Statistics:

Stocks are higher after the Fed paused at the November meeting. Bonds and MBS are up big. Sovereign yields are down across the board, with big declines in Gilts after the Bank of England maintained rates at current levels. We also are seeing a double-digit drop in Bund yields.

As expected, the Fed maintained the Fed Funds rate at current levels. The statement itself was virtually identical to the September statement. The markets seem to be seizing on this statement from Powell that the Fed is done: “The question we’re asking is: Should we hike more?” Powell told reporters yesterday after the Fed held off on raising interest rates for a second consecutive policy meeting. “Slowing down is giving us, I think, a better sense of how much more we need to do, if we need to do more.”

The December Fed Funds futures now predict only a 15% chance of another 25 basis point hike, a sizeable difference from a month ago, when it was closer to 40%.

Great interview with Chris Whalen on why the Fed has to stop and the problems in the commercial real estate market. His point is that valuations in the commercial real estate market are falling and that is a big problem in a rising interest rate environment.

Productivity rose 4.7% in Q3, which is good news for the Fed as it allows output to increase without pushing up inflation. Unit labor costs fell 0.8%. Manufacturing productivity fell, while services productivity increased by a lot.

Companies announced 36,836 job cuts in October, a 22% decrease from February and a 9% increase from last year. Technology continues to be the leading sector, with financial in the #2 slot. AI is a driver of a lot of these changes. Hiring plans are down 46%. Seasonal hiring plans are the lowest in 10 years.

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FOMC Statement: No Change to Rates

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