Solid 10Y Auction Sees Jump In Foreign Demand, Prices On The Screws

I expect that the next cut by the Fed will be in June of 2026.
Tomorrow they will cut, so there is no drama in the markets as we're approaching the end of the year.

Powell, unlike what most believe, will in my opinion be very soft with the language tomorrow. I actually don't expect anything hawkish tomorrow from the Fed.

And therein lies the problem with everything today. Bond vigilantes no longer exist. Based on actual inflation, deficit, and debt numbers there should be little demand for these bonds. Unfortunately there is virtually unlimited demand thus the debt merry go round can continue ad infinitum. Risk assets will continue to inflate unchecked as well.

Interesting view but I’m not sure how that works since him not being hawkish when the market is convinced they will lower a couple times by June of 26, and you saying no cuts. Those two things are very contradictory. He either needs to be hawkish and not lower more or be neutral and lower more.

My base case is that the Fed will continue cutting in June. Considering Powell and comment that he will probably be soft means that I expect him to just keep repeating that the Fed will follow the data and won't throw any spanner in the works by suggesting that inflation problem has gone up. He will acknowledge weaker labor market and will say that inflation is still on the way down to 2% over time. I indeed think that the Fed will resume rate cuts in June, but this has nothing to do with Powell tomorrow. He will not price out the rate cuts that are expected by the market in my opinion and this is why I say that he will just say that the Fed will continue to follow the data. Hawkish tone by Powell would mean that he will price out all rate cuts from this point on, but this isn't what I expect from him and the Fed. There's no reason for the Fed (in their eyes at least) to be agressively hawkish tomorrow, as both employment data and inflation data do not warrant (in their eyes) Fed's pause or rate hikes at the moment. It anything, it warrants more cuts due to weakness in labor market that is becoming more and more apparent. Hope this clarifies what I meant.

However, the Fed will shift very soon from cutting rates to a hold (not tomorrow though) and will probably be on hold until new Fed chair arrives which is in May and the next Fed meeting is in June. Other central banks are already mentioning potential rate hikes if inflation continues to surprise to the upside like RBA and ECB. I don't expect the Fed to mention hikes like them, but will be on hold for that three meetings before the new Fed chair arrives. Political pressure is too heavy on the Fed, unlike ECB and other central banks. 2026. will be a very interesting year for the markets and probably a year where we will see sell-off across the board due to more and more hawkish stance from central banks. That retracement we are expecting on Gold and stocks will probably materialize by the end of the first half of 2026.

It'll be messy, but Fed will cave in either under political pressure or bad employment data that is inevitable and will continue to cut rates during the second half of 2026.

As for JPY, if this actually takes place, JPY will depreciate significantly against other currencies and we will witness more interventions taking place to slow down the beating.