This time the most important are: QRA announcement – part 1 & Dallas regional PMI
1) Markets got a positive surprise with yesterday's QRA release. Immediately after the announcement, the S&P500 jumped about 10 points and continued to grow until the close. We had similar reactions on the dollar (weakening) and the 10Y yield dropped by about 4 bps by the end of the session, while the 2Y reaction was much weaker (in sum, no major changes until the end of the session).
When it comes to Q1 2024, we will have a smaller supply of treasury securities due to higher expected net fiscal flow:
“During the January – March 2024 quarter, Treasury expects to borrow $760 billion in privately-held net marketable debt, assuming an end-of-March cash balance of $750 billion. The borrowing estimate is $55 billion than lower announced in October 2023, largely due to projections of higher net fiscal flows and a higher beginning of quarter cash balance.”
For Q2 2024:
“During the April – June 2024 quarter, Treasury expects to borrow $202 billion in privately-held net marketable debt, assuming an end-of-June cash balance of $750 billion.”
Table 1 provides a detailed summary.
In Q4 2023, Treasury borrowed $776 billion, exactly as much as it expected to borrow in October:
„In October 2023, Treasury estimated borrowing of $776 billion and assumed an end-of-December cash balance of $750 billion. There was no change in privately-held net market borrowing although the ending cash balance was $19 billion higher due primarily to other sources of financing including lower than projected discount on marketable borrowing.”
The QRA (part 2) will be released at 8:30 a.m. on Wednesday, January 31, 2024.
Yet, it should be kept in mind that the main determinants of future bond yields are the path of Fed rate cuts and future inflation (rather than the supply of treasuries securities and its structure).
2) yesterday we also got another US regional manufacturing PMI from the Dallas (Texas) region. This is another strong decline in the regional PMI in January (only the Philadelphia PMI did not decline - see Figure 2-5).
This is starting to be disturbing... on Wednesday we will get the Chicago PMI, and on Thursday ISM Manufacturing.
According to my simple model, assuming that the Chicago PMI does not change in January 2024 (it will be at the same level as in December 2023) - the model indicates an ISM Manufacturing reading of 44.9 – see Figure 6). This is quite low and these are levels that are difficult for the market to ignore (although PMIs in Europe have been lower for a long time, however the market certainly attaches greater importance to US ISM Manufacturing).
My model has a 0.9495 correlation with the actual ISM reading. But it's just a model. In recent months, as can be seen in the Figure 6, we have had some decoupling between the model and the current ISM series than historically.
Additionally, the flash reading for the S&P Global US Manufacturing PMI for January was quite positive: (Jan) 50.3 vs. Exp. 47.9 (Prev. 47.9).
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