* In the week ahead, the focus will be on the Treasury's auctions in the belly of the curve, where supply will test whether further flattening is possible in, say, 2s/5s. BNP's analysts suggested 2s/5s flattening can continue, saying "a lower target for the unemployment rate affords Fed flexibility in the timing of lift-off." Bill O'Donnell, head of U.S. Treasury Strategy at RBS said, "We're also watching the 5/30Y curve," noting its deeply overdone long-term conditions and adding that there is strong evidence from fund performance data that positioning is quite long in the back end. "If 5/30Ys breaks and closes above +120 bps, we'll initiate a new call for a 5/30s steepener - a view that fits well with our long-term, pro-belly outlook," O'Donnell said. The supply schedule has Tuesday a $26 billion 2Y note offering followed by Wednesday's $13 billion 1Y10mo FRN reopen and $35 billion in 5Y note supply. Thursday has $29 billion 7Y notes for sale. Minus the FRN, these will raise almost $12 billion in new cash against a coupon payment of about $5 billion at settlement on March 31.
--
Looking ahead at the week in data, TD strategist Millan Mulraine said, "The February CPI report (out Tuesday) will be of particular interest to the markets as investors tries to handicap the potential for near term rate hikes." February CPI upturn? UBS For the CPI, we project soft core prices in February (0.1% m/m after 0.2%) but the first rise in headline CPI in four months. The core CPI likely remained at a tepid 1.6% y/y. RBC says Feb CPI is a key data point next wk. "The first sequential increase in retail gasoline prices in eight months points to a positive headline CPI read in February, which might seem like a foreign concept given the relentless weakness in the energy complex. We think CPI will rise by +0.4% m/m in February, a development flagged by a near 4% rise in seasonally adjusted gasoline prices."
--
For the rest of the upcoming week's key data and Fedspeak, on Monday, at a MonPol event in Paris, Cleveland Fed's Mester and in New York, Fed Vice Chair Fischer, and in Washington, the NAR's existing home sales report.
Wednesday, there is the February Durable Goods Orders report.
On Friday, another Fischer speech, this time in Germany, fourth quarter GDP's third revision and the March University of Michigan Consumer Sentiment report. In the afternoon Friday, Fed Chair Janet Yellen speaks at a San Francisco Fed conference.
* Atlanta Federal Reserve Bank President Dennis Lockhart said Friday that, while financial regulation should not stifle innovation, it needs to protect the ability of financial institutions to "support the economy." Lockhart, a voting member of the Fed's policymaking Federal Open Market Committee, did not talk about monetary policy two days after the FOMC made a major shift in its "forward guidance" on the path of the federal funds rate in remarks prepared for the University of Georgia School of Law. But he said prudential regulation has to work with monetary policy as the Fed seeks to meet its maximum employment and price stability goals. The right balance must be struck, he said.
* Lockhart also said the Fed's first increase in the federal funds rate could come as early as June and as late as September. Lockhart, a voting member of the Fed's policymaking Federal Open Market Committee this year, said he thinks "mid-year or a little later" is "the appropriate timing" for raising the funds rate from near zero. Lockhart, talking to reporters two days after the FOMC opened the door to rate hikes in coming months by no longer saying "it can be patient" about raising the funds rate, said delay beyond September is possible if economic conditions deteriorate, but made clear that he would not favor delay otherwise.
* The Federal Reserve should not be in a hurry to raise interest rates, Chicago Federal Reserve Bank President Charles Evans said Friday after presenting a paper in which he finds the risks of too-early liftoff outweigh the risks of a late liftoff. "We would be well served by being cautious and be in no hurry to raise interest rates," Evans told reporters following a Brooking Institute event. "At the moment, I still think 2016 is more likely given the forecast configuration that I see." Evans, who is a voter on the Fed's policymaking Federal Open Market Committee this year, reiterated his stance that below 2% inflation means the Fed can delay liftoff until next year.
* The Atlanta Federal Reserve Bank's monthly survey released Friday showed an unchanged inflation outlook for businesses in the sixth Fed district over the next 12 months, with the gap between unit sales in the month compared to normal falling in last quarter. Respondents to the March survey projected unit costs to increase by 1.7%, unchanged from last month's Business Inflation Expectations survey, and same as the January level. The survey reported in March that firms' sales levels and their profit margins are steady when compared with the February.
* Canadian year-over-year inflation held at +1.0% in February, matching the January increase, with lower gasoline prices again the main downward contributor to the Consumer Price Index on a 12-month basis, Statistics Canada reported Friday. Excluding gasoline, the CPI increased by +2.2% Y/Y following a 2.4% rise in January. The gasoline price decline was by -21.8% y/y, showing slightly less downward pressure than the previous month (-26.9% y/y).
* Canadian retail sales plunged again in January, by -1.7% after a similar large drop in December, and although gasoline prices were the main factor there was general weakness among consumers, Statistics Canada reported Friday. The -1.8% decline in December (revised from -2.0% first reported) and the -1.7% in January, both far below analysts' expectations, with Dedcember sales decrease being the largest since the -2.3% in April 2010.
* Unlike the inimitable James Bond, who liked his martinis "shaken, not stirred," the cocktail offered by the Federal Reserve this week was both, leaving a bad taste for the financial markets. Players were pleased to see the word "patient" removed from the Fed statement, but expected more hawkish/less dovish commentary.
* On the day, U.S. Treasury yields tracked German Bund yields lower, although 10-year U.S. yields held above the lowest levels of the week even though 10-year German Bund yields posted a new record low of 0.1686%. Ten-year U.S. Treasury yields were closing around 1.926%, on the low side of this week's range of 1.899, seen Thursday to 2.107%, seen Monday.
* In currencies, the dollar slipped across the board Friday, with the euro, yen and sterling all gaining and emerging market currencies especially buoyant. It was an interesting week for the euro. The pair posted new 12-year lows near $1.0458 Monday and by Wednesday afternoon, in the wake of the Fed decision, was trading in the stratosphere of $1.1030-50. Euro was trading at $1.0812 late Friday, down from an earlier high at $1.0882. In other pairs, dollar-yen held near Y120.00, on the low side of the day's range of Y119.90 to Y121.20.
* NYMEX April light sweet crude oil futures settled up $1.79 at $45.75 per barrel, after trading in a $43.31 to $46.53 range. This is the highest settlement since March 12, but the front contract, which will be the May contract starting Monday, will need to vault the March 13 high at $47.28 to rally further. ICE Brent settled up $0.89 at $55.32/bl after trading in a $53.55 to $55.67 range.
* In U.S. stocks, solid gains Friday, taking comfort from lower U.S. yields, with quadruple witching providing added excitement. The Dow Jones Industrial Average closed up 168 or 0.94% at 18,127.39, the Nasdaq Composite was up 34 or 0.68% at 5,026.418 and the S&P 500 closed up 19 or 0.90% at 2,108.08.
--MNI Washington Bureau; tel: +1 202-371-2121; email: dgulino@mni-news.com