Compelling Case for 50Bp Hikes

Tsys futures trade weaker, off lows to near middle of session range on light volumes for a headline payroll session, TYU2 less than 950k after the bell. Tsys gapped lower following May NFP gain of +390k vs. +310k est, 30YY climbs to 3.1554% high, while yield curves steepened out briefly.

• Fed hike expectations gained slightly out the curve while 50bp hikes at each of the next two meeting remain a lock. Implied Fed hikes firm slightly for meetings later in the year after payrolls. The 143bp for Sep takes it back to yesterday highs whilst the 199bp to year-end nudges 1bp higher and closes on the post May FOMC high of 202bps.
• Limited react to S&P Global composite PMI revised 0.2pts lower in the final release, 53.6 in May. Short end eased after ISM Services index slightly softer than expected, falling from 57.1 to 55.9 (cons 56.5), still Seeing Covid-19 Impact.
• Aside from data, market reacted negatively to reports of Elon Musk email to Tesla execs: "pause all hiring worldwide" late Thu. Reuters reported Musk would like to cut 10% of Tesla's workforce due to a "super bad feeling" about the economy. Musk clarified later in the day: hiring freeze for salaried employees while hourly jobs to rise.
• Cleveland Fed Pres Mester states she wants to see "COMPELLING EVIDENCE INFLATION IS ON DOWNWARD PATH" implying the Fed will continue to hike past signs of inflation peaking. Follow up headline: Mester "COULD BACK 50 BPS SEPT. HIKE IF INFLATION DOESN’T COOL, Bbg.
  Needless to say, nothing really new, markets not reacting to CNBC interview
• Reminder Fed enters media blackout at midnight tonight. No significant data next Monday, but Tsy does have two bill auctions