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Core FI higher as markets saw Powell's speech as dovish

BONDS
  • Core fixed income is higher this morning with Bunds and gilts having caught up with some of the late UST moves yesterday seen following Fed Chair Powell's speech. Markets read the speech as a dovish pivot and the risk of a 75bp hike in December was all but eliminated. But Powell also put more focus on the labor market, signalling for example that the FOMC will continue to see it as imbalanced until we start to see payrolls more sustainably around or below 100k - something that with lags to the data could still mean that we get another 50bp in February (which is no longer fully priced by markets).
  • The European morning session has also seen some mixed final manufacturing PMI prints and the BOE DMP survey which suggested that firms may be less concerned about inflationary pressures than previously, but inflation expectations and wage growth expectations are being very slow to recede - which will be a concern to the MPC.
  • Looking ahead with have US personal income /spending, PCE and weekly claims data ahead of the ISM manufacturing print. This will be closely watched after the big fall in yesterday's MNI Chicago Business Barometer.
  • TY1 futures are up 0-15+ today at 113-31+ with 10y UST yields up 0.8bp at 3.615% and 2y yields up 2.0bp at 4.332%.
  • Bund futures are up 1.26 today at 142.14 with 10y Bund yields down -9.3bp at 1.833% and Schatz yields down -7.8bp at 1.994%.
  • Gilt futures are up 0.58 today at 105.57 with 10y yields down -4.5bp at 3.110% and 2y yields down -3.0bp at 3.227%.
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